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Investing in Chinese Recession Proof Stocks

Companies / China Stocks Nov 25, 2008 - 01:32 PM GMT

By: Money_and_Markets

Companies Best Financial Markets Analysis ArticleOur country has been losing millions of jobs to cheaper foreign competitors and losing our edge in many industries — electronics, automobiles, semiconductors, clothing to name a few — but one thing we have that every country in the world wishes they had is our collection of spectacular universities.

Sure, there are lots of foreign universities with fantastic reputations — Oxford, Tokyo University, the Hebrew University of Jerusalem, the University of Paris, and McGill University. But foreign students have been enrolling in U.S. colleges in staggering amounts.

The U.S.A. Is a Mecca of Higher Education

According to the new Open Doors 2008 report from the Institute on International Education, a total of 623,805 students from around the world (61% from Asia) attended a U.S. college in the 2006-07 academic year. Overall, new international student enrollments increased by 10%, following an increases of 10% and 8% the previous two years.

Hundreds of thousands of students from around the world attend a U.S. college or university each year.
Hundreds of thousands of students from around the world attend a U.S. college or university each year.

Each of the three largest sending countries experienced double-digit increases: South Korea up 11%, India up 13%, and China up 20%.

Most of those foreign students headed to (in order) California, New York, Texas, Massachusetts, and Illinois. The most popular colleges are University of Southern California, New York University, Columbia University, University of Illinois, and Purdue University.

In case you're curious, engineering and business are the most popular fields of study for foreign students.

By the way, the flow of international students goes both ways, The Institute on International Education (IIE) showed that a record number of American students are studying abroad, too.

In the 2006-07 academic year (the most recent figures available), a total of 241,791 Americans enrolled in foreign colleges. That is an 8% increase from the previous year but a 150% in the latest decade.

The biggest increases were in the numbers going to Argentina, South Africa, Ecuador, India and China. The number of Americans enrolled in Chinese colleges increased by 25% last year.

11,064 American were enrolled in Chinese colleges in the 2006-07 academic year (most recent figures). To put that in perspective, 1,396 Americans studied in China in 1995-96.

“Interest in China is growing dramatically, and I think we'll see even sharper increases in next year's report,” said Allan Goodman, President of the IIE. “People used to go to China to study the history and language, and many still do, but with China looming so large in all our futures, there's been a real shift, and more students go for an understanding of what's happening economically and politically.”

Those foreign students can't just show up at a U.S. college. They must first pass the Test of English as a Foreign Language (or TOEFL, pronounced “toe-full”) first. The TOEFL test evaluates the potential success of an individual to use and understand Standard English at a college level and is required for non-native applicants at English-speaking universities in the U.S., Canada, Australia, and the U.K.

All those additional foreign students mean more profits for New Oriental Education, the largest English-instruction school in China, which also happens to hold a government-authorized monopoly to administer the TOEFL.

That is a big part of the reason why New Oriental Education just delivered another great quarter. Even the glued-to-the-TV enthusiasm of the Beijing Olympics or the Sichuan earthquake couldn't slow it down. For example:

» The number of students taking classes increased to 545,000, a 24% increase from the same period a year ago.

» Higher enrollment and higher tuition increased revenues by 47% to $118.3 million.

» Profits increased to $1.17 per share, 34% more than last year.

» Deferred revenue — fees paid by students who haven't taken classes yet — grew to $42.6 million, a 60% jump from last year.

» New Oriental Education added 15 new schools and a learning center in the last quarter.

Those are great numbers, but more important is the reason demand for EDU's classes is so strong:

“Demand for our subjects training in China is high as kids are under tremendous pressure to obtain high scores on … college entrance examination,” said CEO Michael Yu.

Sample TOEFL Question #1:
Photography changed dramatically __________ introduced instant pictures.

(a) when Polaroid
(b) Polaroid
(c) when was
(d) it when Polaroid

Sample TOEFL Question #2:
Sebastian can drink __________ a gallon of beer in one sitting.

(a) mostly
(b) as much as
(c) so much that
(d) their

Many foreign students must learn Standard English before applying to an English-speaking university in the U.S., the U.K., Canada or Australia.
Many foreign students must learn Standard English before applying to an English-speaking university in the U.S., the U.K., Canada or Australia.

Hitting the Books In Hard Times

It doesn't matter if the Chinese economy grows by 4%, 6%, 8%, 10% or more — the demand for New Oriental's services is not going to fall and that is why New Oriental is the most recession-resistant stock you will ever find.

In fact, history has shown (at least in America) that people will spend more on education during difficult economic times.

You don't have to open a Chinese brokerage account to buy stock in New Oriental Education because it is traded on the New York Stock Exchange. New Oriental Education, symbol EDU, is just one of almost 100 Chinese companies that are listed on a U.S. stock exchange.

I'm not suggesting that you rush out and buy EDU stock today because the market is very volatile, but if I had to hitch my wagon to just one stock and one stock only, New Oriental Education is the one I would buy.

Best wishes,


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