Invest in China –one of the BRICs

The U.S. dollar has been getting hammered lately, falling against a number of different currencies across the globe, and this could be just the beginning of a period of extreme dollar weakness. Dollar bears doubt that the Federal Reserve and Congress will have the ability or willingness to wind down their massive lending and spending programs before a wave of inflation sets in. sending the dollar tumbling much further. Just ask Warren Buffett, Steven Leuthold, or John Paulson, all of whom have recently sounded the inflation alarm.

A declining dollar is nothing new. The financial crisis caused investors to flee to the perceived quality of the greenback, but before that the dollar had been losing ground since 2002 to a number of other currencies--including those of the so-called "BRIC" countries, Brazil, Russia, India, and China. In 2003, Goldman Sachs ( GS - news - people ), which coined the "BRIC" moniker, predicted that those fast-growing, potential-packed nations would overtake the G6 nations in terms of GDP by about 2040, in part because of appreciations in their currencies vs. the dollar.

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Goldman remains high on the BRICs. The firm released a report over the summer saying that the BRIC nations will pick up the slack left by the struggling U.S. consumer and drive global growth going forward. Goldman predicts that Brazil, Russia, India and China will account for half of the world's consumption growth next year.

With that in mind, I ran a bunch of U.S.-traded stocks that have high exposure to the BRIC markets through my guru strategies--computer models each based on the strategy of different investing legends like Ben Graham, Warren Buffett or Peter Lynch.

I found of number of attractive plays. Below are some of the best of the bunch:

Nokia Corporation ( NOK - news - people ): Headquartered in Finland, this mobile phone power focuses a good deal of its efforts on the BRIC markets. In 2008, China (5.9 million euros) and India (3.7 million euros) ranked Nos. 1 and 2 among Nokia's top 10 markets based on net sales. Russia (2.1 million euros) ranked fifth, while Brazil (1.9 million euros) ranked eighth. All four of the markets' sales increased for the year, with Brazil's jumping more than 50%.

Nokia gets approval from the value strategy I base on the writings of James O'Shaughnessy. When looking for value stocks, O'Shaughnessy targeted large firms because they tend to exhibit solid and stable earnings. Nokia's $56.2 billion market cap and $64.2 billion in trailing 12-month sales fit the bill.
O'Shaughnessy also required value plays to have a cash flow per share greater than the market mean, which is currently $0.53. Nokia's cash flow per share of $1.47 almost triples that, a great sign.

Another reason the O'Shaughnessy value model likes Nokia: The stock has a strong 3.6% dividend yield.

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Jinpan International Limited ( JST - news - people ): Based in China, Jinpan's business isn't glamorous, but it's very necessary. It produces cast resin transformers that take high-voltage transmissions of electricity and distribute them to other areas in lower, more usable voltages. Its transformers have industrial, infrastructure, commercial and residential uses.

Jinpan is definitely on the small side (market cap of about $220 million), but it has potential for serious gains. The firm has been expanding its reach outside of China, but more than 85% of its sales still come from within the fast-growing country. And its fundamentals are excellent, earning it approval from both my Peter Lynch- and Warren Buffett-based Guru Strategies.

My Lynch model considers Jinpan a "fast-grower"--Lynch's favorite type of investment--because of its 38.4% growth rate. (I use an average of the three-, four-, and five-year earnings per share figures to determine a long-term growth rate.) To find fast-growers selling on the cheap, Lynch famously used the P/E/Growth ratio; P/E/Gs below 1.0 are acceptable to this model, with those below 0.5 the best case. When we divide Jinpan's price/earnings ratio of 9.15 by that growth rate, we get an excellent 0.24 P/E/G, indicating that this fast-grower is a bargain.

Lynch also liked conservatively financed companies, and my Lynch model targets stocks with a debt/equity ratio below 80%. At about 25%, Jinpan easily makes the grade.

My conservative Buffett-based model, meanwhile, looks deep into a company's history to find solid, consistently growing businesses. Jinpan has increased EPS in every year of the past decade, earnings high marks from this strategy.

One quality Buffett is known to look for is strong management, and one way he has measured that is by looking at use of retained earnings. By taking the amount Jinpan's EPS have increased in the past decade ($2.10) and dividing it by the amount of earnings Jinpan has retained over that period ($9.11), we see that management has proven it can earn shareholders a 23% return on the earnings it keeps--almost doubling the 12% standard my Buffett-based model uses.

LVMH Moet Hennessy Louis Vuitton ( LVMHF - news - people ) SA: This luxury goods house makes a variety of products in the fashion, perfume, and wine and spirits arenas. Aside from the three included in its name, its famous brands also include Christian Dior ( CHDRF.PK - news - people ), Givenchy, Donna Karan, Fendi, TAG Heuer and De Beers.

LVMH has had solid success in BRIC nations. It's found "robust consumer demand" in Russia and China for its Dior perfumes, for example, as well as "resilient" sales for its cognac in China, according to its first-quarter report this year. A new study from McKinsey & Co. also estimates that China will become home to the world's fourth-largest population of wealthy households by 2015--and the study says that Louis Vuitton is one of the country's most popular luxury brands already.

LVMH gets approval from both my Lynch- and O'Shaughnessy-based models. My Lynch strategy considers the stock a "stalwart" because of its moderate 16.4% long-term growth rate and $25-billion-plus in annual sales. Lynch typically kept some of these solid, stable firms in his portfolio at all times.

For stalwarts, Lynch adjusted the "G" portion of the P/E/G ratio to include dividend yield. In part because of its strong 3.44% yield, LVMH has a yield-adjusted P/E/G of 0.91, coming in under this model's 1.0 upper limit, a good sign. It also has the kind of solid financing the Lynch model likes, with a manageable 46% debt/equity ratio.

My O'Shaughnessy value model likes LVMH's size ($47.5 billion market cap), as well as its solid $1.68 in cash flow per share, which more than triples the market mean. And that 3.44% yield also earns high marks from this strategy.

Bayer ( BAYRY - news - people ) AG: This German health care giant makes a variety of products, including medical equipment; prescription drugs like Levitra and Cipro; over-the-counter drugs like Aleve and Alka-Seltzer; and polycarbonate, polyurethanes, and other materials used in the automotive, construction, and electronics industries.

Bayer has a serious BRIC focus, with 2008 sales jumping by 22% in Brazil, 41% in Russia, and 22% in India, with overall sales for those three countries totaling about $2.3 billion. And sales in China--which has quickly become Bayer's third-largest market--increased 6% to almost $2 billion.

My O'Shaughnessy value method is high on Bayer, in part because of the firm's exceptional $9.84 per share cash flow. Bayer also has the size that this model likes, with a $51.2 billion market cap and more than $45 billion in trailing 12-month sales. Its dividend isn't spectacular--2.83%--but it's solid enough to gain approval from the O'Shaughnessy model.

Coping With Volatility

As we've seen over the past year or two, BRIC stocks--despite their countries' tremendous potential for growth--can get hit hard in the short term just like those of any other country. After weathering the global financial crisis, however, the BRIC nations continue to have good long-term prospects for growth. When you factor in the possibility of further declines in the dollar, stocks linked to these up-and-coming regions can be a good play for a portion of your portfolio--so long as they have good businesses and strong fundamentals, like the stocks I've examined here.

John P. Reese is founder and CEO of Validea.com and Validea Capital Management, and co-author of the new investing book The Guru Investor: How to Beat the Market Using History's Best Investment Strategies(John Wiley & Sons). He is also co-author of The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Click here for more of Reese's insights and analysis, and to subscribe to the Validea Hot List.At the time of publication, John Reese was long Nokia and Jinpan Int'l.