“Number 1 Global Stock Idea for 2009” — Motley Fool

By Travis Johnson, Stock Gumshoe, July 28, 2009

This tease comes in an ad for the Motley Fool’s Global Gains newsletter, which has brought some interesting ideas to our attention during its relatively short life so far (though I imagine it probably had a terrible year last year — this is one of the few Motley Fool newsletters that Hulbert doesn’t track, and the Fool no longer has a big chart bragging about their newsletters’ performance vs. the S&P 500 on their site, probably for exactly the reason you’re guessing). It used to be helmed by Bill Mann, whose analysis I always liked, but is now run by a couple of other guys (Nathan Parmelee and Tim Hanson, if you must know).

But anyway, Global Gains picks, you guessed it, international stocks, and they’ve always been heavy teasers of the “China story” — the huge population, the growing infrastructure, the building a new Chicago every day, etc. etc., and most of their teaser picks that we’ve scoped out here have been BRIC picks of one stripe or another (BRIC being Brazil, Russia, India, and China, if you’ve somehow evaded the overuse of that acronym so far).

And the analysts for the Fool just got back from a trip to China, doing what Robert Hsu’s newsletters always call “boots on the ground” research, with the assumption that when you meet with company management and see their products you’ll be wiser and in the know (as opposed to having the wool pulled over your eyes by earnest managers and seeing a stage-dressed factory, which I assume must also happen sometimes). During that trip they continued an exploration of the agriculture sector, a China story that I happen to agree with, and tried to sniff out a stock that might show the same great gains as another one they’ve picked for good gains, China Green Agriculture (CGA).

China Green roughly tripled off of the March bottom (as, to be fair, did many volatile little China stocks), so they’re looking for another delight like that. Though they also say that they still very much like CGA that that it’s still cheap, so there’s a freebie for you.

But the top secret teaser is the one we’re looking for here …

“But right now, I want to tell you about a second, nearly identical opportunity I discovered on this year’s trip.

“I think you’ll see at once why the similarities with last year’s 200%-plus gainer are nothing short of uncanny — and why I’ve made it my No. 1 Global Stock Idea for 2009. “

Now, if you go and call something the number one idea for 2009 (especially now that we’re more than halfway through the year), then you can pretty much count on the Gumshoe doing a little salivating … or at least, a little thinkolating. Let’s see what the clues are …

They tell us that the secret to this company’s success is … marketing. They go through a long spiel about Chairman Mao, and about how he created a brand around himself and focused on the rural peasants, and tell us that this company is doing much the same thing (though the marketing they’re using might have more in common with Coca Cola).

The point is that this company — it’s an organic fertilizer manufacturer and distributor — has put on a full court press to build their brand in rural china, one town at a time, one local supply store at a time. They use existing stores, pay to spruce them up with their own signs and multimedia marketing materials, and build the brand up that way — they have 2,000 stores now carrying their brand now, more than twice as many as last year, and they are trying aggressively to build up trust among the country’s farmers.

“The result is a vast network of specialized outlets with a local feel and longtime recognition in the neighborhood. And mixed right in with the posters and banners — a computer blasting promotional videos touts the benefits of the company’s products!

“In another modern twist, the company runs commercials on CCTV 7, the nation’s agricultural channel, highlighting the success stories of real local farmers who have made more money as a result of using the company’s patented organic fertilizer.

“It’s a long cry, indeed, from the old days when traveling sales reps actually drank the company’s fertilizer to convince skeptical farmers it was organic and safe to use!”

The big picture for increasing demand is the slow consolidation of agribusiness, as the central government starts to allow more property rights, and the transfer of small farms into centralized operations — this seems very early days yet for land policy liberalization in China, with some limited ability to sell your land use rights, but I do keep reading that it’s still going the right direction, at least, however slowly. And, perhaps as important, we hear still more about the Chinese government’s obsession with improving quality of life in rural China — which means bringing more money, which will allow farmers to invest more in better fertilizers and equipment and seeds, which will boost yields, which will help feed a hungry nation. And have the nice side effect of creating opportunity in the hinterlands, which would slow the mass migration to the coastal industrial cities and, perhaps, give the populace one more reason not to rise up against their leaders.

So that’s how the stimulus is supposed to play out in rural China — help the farmers, build roads, get money to trickle down to the peasants. Here’s how the Foolies put it:

“This explains why rural economies have held up better than those in other parts of China and the world. It’s certainly why rural China looks like the safest and most profitable way to play the China growth miracle today.

“Here are just a few other key factors driving China’s Rural Investment Boom…

“1. Insulated from global shocks — Unlike industrialized China which relies heavily on low-cost exports, rural China is immune to changes in global demand… and positioned to benefit from massive domestic stimulus
2. Underleveraged — China’s rural economies are not burdened with debt and don’t have to rely on free global or domestic credit to sustain their awesome growth — currently in excess of 12% per year
3. Billions in govt. subsidies — A top 5 priority in Beijing, China’s rural farmers benefit directly from a wide range of government initiatives, from tax breaks on income to subsidies to buy equipment and supplies — even before the massive stimulus package”

I’m actually mostly on board with that general analysis, so I’m happy to move on to the next step: What’s the company that they call their number one idea for this year? I know it’s not the company I own in this sector (they don’t generally pick light-volume pink sheet stocks f