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Sweet Profits From the 9 Lemons of 2009

December 29, 2008

By Robert Hsu, Editor, China Strategy

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Robert Hsu

Robert Hsu

Robert Hsu is the founder and president of Absolute Return Capital Advisors LLC., a private client money management firm. His firsthand knowledge of Chinese culture, business and government combined with his phenomenal track record as an investor make him uniquely qualified to help you build your fortune from the economic miracle under way in China.

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Regardless of the rough economic and investment environment that we're currently in, all of these lemons have actually created some profitable investment opportunities — all of which lie in China, one of the few economies to still be posting solid economic growth and faring the current financial crisis slightly unscathed.

Many of these companies are actually set to benefit from the countless bailout and stimulus plans that the Chinese government has presented in order to boost economic growth within its borders.

Let's take a look at these nine opportunities and the companies set to profit from these trends.

Lemon #1: Recession hits consumers hard.

Downscale is the new upscale, as I'm sure you've noticed, as you jostle with the fur-coat brigade down the aisles at Wal-Mart.

LEMONADE: Yum is best-positioned to win back the cost conscious consumer. But that's not the only reason we're loading upon Yum Brands (YUM), the owner of Pizza Hut, Kentucky Fried Chicken and Taco Bell.

Yum is booming despite the whack it took in October. It's headed from $30 to $40 very quickly, I believe, and it could well hit $60 in 2009, based on Yum's recession strategy. (See also: "Why China Will Shine in 2009.")

Three Reasons For A Double In Yum

Reason #1: As the economy slumps McDonald's is mopping up. Visits to the Golden Arches jumped from 2.4 to 2.7 times a month in November. And diners are spending more, too: almost $20 a month, up from $17. Yum's business is closely modeled on McDonald's. Both chains saw some fatigue during the Go-Go Years, and both are back strongly in the Bust.

Reason #2: All economies are local economies. This is a lesson Yum has taught McDonald's. New York is not New Orleans, Mumbai is not Shanghai. Yum's success hinges on mass customization, in which the familiar is wrapped in the iconic. This is reassuring in times of great uncertainty, and Yum is a world leader in the art of reassurance. (See also: "Two Reasons Why McDonald's Is So Resilient.")

Reason #3...