China Mobile a buy

Almost picked up more VMware, but the increased volume today on a dip kept me at a distance. I did scoop up a few shares of China Mobile for the first time. The stock has ramped up in the past few months and may be in for a period of lengthy consolidation. That's fine. I like where it is right now, and also where the prospects of the Co are in the near future. As I mentioned earlier, online gaming is huge in China, and CHL is just starting to dip its toes into this new area.

For trading purposes, I would've been better off increasing a position in another stock, but CHL is too good to bypass anymore. It's an A grade stock, but I won't hesitate to take a good profit.

China Mobile dials up a promotion

Back in spring, when Chinese stocks started to appeal to me, I couldn't ignore China Mobile. As the dominant cellphone carrier in the MIddle Kingdom, I read that the big cities had been saturated already. All that was left were the rural areas. I thought of CHL as a steady, reliable, but slow growth mover.

Boy, was I wrong. Here's a closer look.

China Mobile ADR (CHL) $83

• The skinny
I never really anticipated the growth of cellphone technology. I never realized back in the spring exactly how dependent Chinese are on their cells to get on the internet, far, far more than us in the states. And with the coming expansion of the industry — online gaming through cellphones, for example — there's really no barrier to how far CHL can go when the country has a population of 1.3 billion. BEEEEEELLLLLLION.

• Earnings





• Fundamentals
See the financials at Yahoo Finance
It's easy to think of a giant conglomerate like China Mobile more like a utility, but that wouldn't be right. Though the P/E is 34, the forward P/E is just 25. The profit margin (22%) and operating margin (34%) are insatiable. Quarterly revenue growth (21%) and earnings growth (25%) are tremendous. Total cash is $24.6 billion, with total debt at just $4.8 billion. Short interest is miniscule, but that's not a big deal. What's not to like?

• The chart





















I have to confess, at first glance, this looks like CNOOC's chart. Same explosive move after the fed rate cut, a multitude of up gaps. Crazy, but in China, oil and cellphones rule.

• News
S&P MAINTAINS BUY OPINION ON ADSS OF CHINA MOBILE
We believe CHL continues to generate strong subscriber growth, having reported 11.2 million net additions in July and August, putting the company on pace to outperform our forecast of a 20.5% customer increase for '07. We are raising our '07 earnings per ADS estimate by $0.02 to $2.82 and our '08 projection by $0.12 to $3.27, reflecting higher revenues, as CHL further expands in rural markets. We are also increasing our 12-month target price by $7 to $87, incorporating a 10.7% free cash flow growth rate, up from 10.1%, into our discounted cash flow analysis.

Grade: A-. I read this stock wrong in the spring, giving it just a B grade — same as Microsoft. What I failed to gauge is that MSFT's growth curve is behind it, while CHL's growth is ongoing, perhaps short of the peak by many months or years. This is a true A- stock, not a B grader. I don't consider CHL a buy here at 83, but when it dips below its 10-day SMA, I'll be watching more closely.

Pupule says: Wait.

Google gains China Mobile as valuable partner

If you own Google, this is a pivotal time in China.

If you own Baidu, this is "Uh-oh" time.

Google announced recently that it will provide search for subscribers of China Mobile, the nation's dominant provider. This would leave China Unicom, the distant runner-up to China Mobile, as the best remaining potential partner for Baidu. Because Chinese prefer to access the internet by phone than computer, this is a enormously crucial factor in the Baidu-Google war.

I wonder what the next Baidu TV commercial will be like now. An earlier Baidu commercial left Google for dead.

Google's next opponent

Google doing so well. When I was a kid, I heard about this googol, which is the numeral 1 followed by 100 zeroes.

Well, Google is a name well chosen for many reasons. But what I like today is the market's response to the Co's decision to go into the wireless advertising space. GOOG is trading up 1.2% at $509 near the close. I can't help but look at this through China-made binoculars. With China Mobile, Tencent and Alibaba dominating the space there, this move by Google is a must.

Whether GOOG penetrates the culture enough to make a dent depends on the Co's continued efforts to localize itself. Example: calling itself Guge, though there already exists a Beijing company by that name.

Ultimately, the online cellphone advertising space in China will be a war between Google and Alibaba, which goes public later this year. Alibaba is 40% owned by Yahoo. Things are beyond interesting now.

Pupule Paul has no position in Google.