Shanda Interactive Entertainment (SNDA) Riding China's Rally

April 17, 2009

Don't let the recent stock market rally fool you. It's clear that the U.S. economy continues to be face major obstacles. The housing market is a mess, foreclosures are up, and this earnings season won't be pretty for a lot of stocks.

But in addition to my carefully-selected Top Stocks to Buy Now, I do see an area for investors that's looking very bright -- across the Pacific Ocean in China.

Many of my favorite China stocks have been soaring in recent weeks. A perfect example is Shanda Interactive Entertainment (SNDA), which has nearly doubled in the last three months. I'll have more on Shanda in a bit, but now I want to explain why China continues to be an engine of growth.

China Stocks Have Great Potential

Actually, it's not hard to see why. China's GDP has slowed since the booming days of double-digit expansion, but the economy is still growing at a healthy clip, while the rest of the world loses ground. This region's strength plays an important role in keeping the global economic engine running in these tough times.

The Wall Street Journal recently reported that China's massive $585 billion government stimulus program appears to be kicking in. Demand for raw materials in this manufacturing powerhouse has ramped up again, and Chinese crude-oil imports hit a one-year high in March. Additionally, Chinese steel mills have imported record quantities of iron ore in anticipation of a pickup in demand in coming months. This is a very encouraging sign.

China's aggressive spending plan clearly reflects the power of its state-dominated economy, but there are signs that Chinese consumers are starting to spend more, too.

Car sales hit a monthly record in March to mark the third straight monthly rise. What's more, Chinese car sales have exceeded U.S. vehicle sales every month so far this year.

Business confidence has also perked up, and the Chinese National Bureau of Statistics announced that its survey of managers' confidence rose significantly in the first quarter.

There are many reasons why investment opportunities are much better in China. While America's GDP numbers are struggling to get back to square one, China's growth will go from being a "meager" 6% to an explosive 10% or 15% in just a few quarters. That means now is the time to make sure your portfolio has exposure to China.

Why I like Shanda Interactive Entertainment

My #1 China buy is Shanda Interactive Entertainment (SNDA). The company is one of the largest operators of online games in China. Shanda offers popular games like The Legend of Mir II and The World of Legend, two blockbuster titles that are household favorites in China.

These two titles account for about 75% of the company's sales. And don't think that once a customer buys the game that's the end of the revenue stream. The company charges a subscription fee to play these online games, not just a one-shot price to buy the software.

Staying home to play a video game instead of going out to spend money on dinner or a movie remains a very affordable form of entertainment in China right now. And besides, Shanda's popular online titles provide the escapism many Chinese consumers need right now amid the gloomy headlines.

As the dollar weakens across 2009, I expect Shanda's bottom line to grow even more. Look for another outstanding earnings report next month.

I currently rate SNDA a very strong buy.

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In these volatile times, your best defense is a strong offense of fundamentally superior stocks. Make the wrong choices and your already battered portfolio could suffer even more. Make the right moves though, and you can ensure your portfolio posts profits for the entire year. The actions you take now could make or break your performance this year. Today accept your copy of the 2009 Investing Guide, absolutely FREE, so that you can get a look at the opportunities and the dangers that investors will confront in 2009.