China for Counterintuitive Plays

 | Apr 08, 2013 | 3:29 PM EDT
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We don't know what is going on in China.

We do know that the stock market there's been crushed. We do know that the country seems in disarray with endless stories about corruption at banks and housing bubbles galore. We know that 25% of its exports go to Europe and that means business is probably at a standstill. I think a ton of money is coming out of China and coming here because of worries about recession, even insurrection.

But as my friend and colleague Matt Horween pointed out to me and Stephanie Link, my co-director of Action Alerts PLUS who will be on the Chairman's Club Call with me on Wednesday, copper might be putting in a bottom and Caterpillar (CAT) didn't get hammered off a downgrade and a number cut. The Baltic Freight decline might be running its course.

I can't think, for the moment, of a more contrary trade than buying China. We sold the iShares FTSE China 25 Index Fund (FXI) for ActionAlerts PLUS at $40, it's now at $35 and I am not tempted because I find things so opaque over there.

That said, the idea that nobody likes, trusts or believes in China just a couple of weeks into the new regime does seem a little too negative. Of course, if you believe that China has bottomed it's tougher than ever to find something to buy. You could pick Cummins (CMI), but there's risk to the truck market in this country. You can't buy Yum! Brands (YUM) right now with bird flu raging. I think that you might be tempted to buy Starbucks (SBUX) because it is big in China, but there are so many moving parts to SBUX that I don't think it can positively correlate.

Which leaves a couple of other stocks. First us Joy Global (JOY). Here's the finest machinery company outside of Caterpillar -- which I have said I would buy under $80 -- and a company that has a terrific maintenance business that tides them through rough times.

Second? Vale (VALE), which has been horrendous of late because iron ore has been so weak because of a collapse in steel making in China. The latter intrigued us so much at Action Alerts PLUS that we bought a little this very morning.

So, if you want a counterintuitive trade, look no further than China. It's the one everybody loves to hate.

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