Stocks of U.S. Exporters. China may be eating, figuratively speaking, the U.S.'s lunch; but that's good news for U.S. companies who are feeding it--ones selling the goods and services a growing China needs and wants. Kevin Cook, senior stock strategist at Zacks Investment Research, says the list of publicly traded U.S. companies that stand to profit from increased exports includes Caterpillar, Deere, Cummins and other makers of construction equipment and heavy machinery. He also likes Eaton, which makes hydraulic systems and electrical components for power grids.
"China has people who want the lifestyle of the West," he says. "They're building roads and schools and hospitals. They're expanding agriculture."
One might also buy the stocks of U.S. companies that have established operations in China and are selling to it locally. A recent article in the Harvard Business Review by members of the Boston Consulting Group argues that such companies--including General Electric and General Motors--stand to profit better than will U.S. exporters.
Stocks of Chinese Companies. If the U.S. economy is sputtering, China's, at least for now, continues to race along. Why not buy in? The easiest way is to buy Chinese companies whose stocks are traded right here in the U.S., on NASDAQ and other U.S. exchanges. True, these represent only a small fraction of the companies traded on the Shanghai and Hong Kong exchanges (about 180 companies are traded in the U.S., versus 5,000 in Shanghai).
But, says Blaze Fabry, founder of Chinavestor, these represent some of China's best opportunities. He likes in particular stocks pegged to consumer demand, such as telecom provider China Mobile, local airlines including China Eastern Air and China South Air, and search engine giant Baidu, the so-called Google of China.
Berkshire Hathaway?! - "I would buy the hell out of Berkshire Hathaway," says Ali Wambold, former CEO of Lazard Alternative Investments and now a managing principal of Corporate Partners, a private equity fund. "The logic is simple."
He proceeds to tick off all the other options an investor, worried about U.S. debt, might consider--including some of the ones discussed above.
"It's a process of elimination," Wambold explains. "The question that you start with is: How am I going to get killed?" To avoid getting killed, he would not own long-term U.S. government bonds. He would not own gold. Gold certainly has done well and has outperformed many other investments and "will do better than the U.S. dollar, over the long term," he says, but is not fated to enjoy, he thinks, "an explosive increase in value" from its present price.
How about commodities? "It all depends on how nimble you are. If it were you or me, I wouldn't touch them. Too much volatility. There's no way to know the truth about what the Chinese are doing in that market."
How about emerging market equities--say stocks of Chinese companies? "It's very difficult to play China as an investor because the Chinese are so manipulative and dishonest. You never know if you're getting the straight story on anything. They have a legal system not protective of the foreign investor, let alone the domestic."
Currencies? "I would certainly diversify out of the dollar wherever I could. Debasing the U.S. currency is the only macro economic tool we have left, and Ben Bernanke has shown he has every inclination to use it. I would tiptoe away from the U.S. dollar."
Okay, what else?