This from Penny Sleuth:

What do frozen desserts, designer handbags, and underwear have in common? Two of the best investment opportunities this decade. Allow me to explain…

A single company – one you’re probably familiar with – sold all three seemingly unrelated products. A few years ago, Sara Lee Corp (NYSE:SLE) – maker of frozen (yet tasty) pies and cakes – owned hundreds of brands, many of which made no sense.

For instance, the frozen cheesecake manufacturer was the sole owner of Coach handbags and Hanes underwear. These two subsidiaries obviously didn’t make much sense to the company. That’s why – during two separate transactions – Sara Lee’s management and board of directors divested them through a process known as a spinoff.

Spinoffs are common in the business world. They can present smart investors with huge opportunities and sometimes, less fortunate investors with even larger losses. Spinoffs are usually as simple as they sound – a parent company decides it can do without one of its business. So, the subsidiary is spun off onto its own.

There are four basic reasons for a parent to spinoff one of its “children”:

• Unrelated Businesses – many times, companies like Sara Lee own certain subsidiaries – like Coach and Hanes – they have no business owning. This happens often in conglomerates when a certain product takes off and is held back by the organization of the parent company.

• Tax Benefits – taxes can be burdensome and confusing. But every once in a while, the mathematicians and financial wizards find a loophole to save on taxes and preserve shareholder value. Occasionally, it takes a spinoff to do it.

• Refocusing – oftentimes, a large company will take a look at its operations and find one of its businesses lagging behind, which inevitably puts a strain on management to fix the problem. The best solution is to spinoff this business so management of the parent company can get back to growing profitable businesses. This often benefits both the parent and “child” company.

• Pinching Off Debt – some spinoffs are created to unload debt and other burdensome liabilities. This is where many unfortunate investors take enormous losses. As you can imagine, a company created out of a need to unload debt is doomed from the start.

It’s important to decipher between the four reasons because if you find the right one, you stand to make colossal gains. Let’s look back at our top example…

As we noted, Sara Lee’s situation fits the first mold – unrelated businesses. Spinning off a perfectly capable business creates earning potential neither the parent nor the “child” even realized.

Sara Lee first spun off Coach in 2000. Almost immediately, the newly formed Coach Inc (NYSE:COH) began its own marketing program. This turned into an enormous success and unrealized profit potential came to light, which shot shares straight up over the next six years. As you can see in the chart below, Coach outperformed its former parent by more than 2,000% to negative 15%.

The same thing happen in round two, when Sara Lee spun off Hanesbrand Inc (NYSE:HBI) in 2006. Although the gains were not as fantastic, Hanes shareholders watch their shares double as Sara Lee shares stayed flat:

Of course, not all spinoffs work this way. It takes serious studying and an ear to the ground to find out exactly what’s going on.

Many times, when parents spinoff businesses, they keep it quiet. If the media gets a hold of it, shares can crash artificially, or spike prematurely. And, as we mentioned, many spinoffs negatively affect shareholders.

One recent example is InterActiveCorp’s (Nasdaq:IACI) spinoff of Ticketmaster Entertainment Inc (Nasdaq:TKTM) . When Ticketmaster was sent on its way, InterActiveCorp left it with a parting gift of about $750 million in debt, just as the credit crisis began to peak this summer. Shares of Ticketmaster, inevitably collapsed under this weight, falling more than 80 %:

Of course, you have to use your best judgment when you discover a spinoff. You’ll have to make the decision on why you think the parent company spun it off.

More than not, however, buying spinoffs when they’re fresh is a pretty good idea. According to Chris Mayer of Mayer’s Special Situations – a newsletter focused on spinoffs and other unique investments – “spinoffs beat their industry peers and outperformed the S&P 500 Index by about 10% per year in their first three years of existence.”

Those numbers account for both spin offs that lead to gains and those that lead to losses. Obviously, this is something to look into.

If you are lucky enough, and have the right inside knowledge, you can easily take advantage of the next Coach spinoff and leave the next Ticketmaster alone.

Source: Spinoff Stocks: Quick, Proven Way to Grab Easy Gains

But China is coping with a number of growing pains that include higher wages and a strengthening currency. That has left a void for other emerging markets to step up and take the place of a multinational corporation’s best friend.

China used to be thought of as the world’s factory floor – a haven of cheap labor and minimal regulatory oversight for large multinational companies. The result was a massive influx of foreign investment and rapid gross domestic product (GDP) growth. But the country has outgrown this model and is shifting from low-skill, labor-intensive industries to a higher standard of living.

A recent study by the Booz Allen Hamilton Inc. consulting firm found that wages in China rose 9.1% for white-collar managers and 7.6% for blue-collar workers over the past year, the San Diego Tribune reported.

“The days of massive labor oversupply are over,” Cai Fang from the Chinese Academy of Social Sciences (CASS), said at a recent economic forum. “According to my research and relevant surveys, the wages of China’s migrant workers rose 2.8% in 2004, 6.5% in 2005, 11.5% in 2006 and 20% in 2007.”

Part of the reason is that China’s notorious one-child family planning policy is beginning to cause a labor shortage.

Last year, Zhang Yi from the Institute of Population and Labor Economics, told Asia News that the one-child policy has produced an effect where fewer rural workers are going into cities to work.

“In the beginning, it was believed that our big population would be a hindrance to our economic development. But over the past decades, experience has told us otherwise,” Zhang said. “Japan, for instance, has little in the way of resources and boasts one of the highest population densities in the world, but it is a thriving economy and one of the richest nations. Labor is the most important source of wealth.”

By 2025, China’s labor force will have been shrinking in total size for more than a decade, according to Zhang.

Another problem is inflation, as high consumer and producer prices are spilling over into wages. Consumer prices rose 7.7% in May after inflation reached a 12-year high of 8.7% in February. China’s producer price index rose 8.2% in May, the highest in more than three years.

Inflation also makes exports more expensive for foreign nations, particularly the United States. The Labor Department said last week that prices for Chinese-made goods were 4.6% higher in May than a year earlier.

Meanwhile, the dollar has fallen 20% versus the yuan since 2005. Yesterday (Thursday), The yuan rose to its strongest position ever, trading at 6.8762 against the U.S. currency as of 11:53 a.m. in Shanghai, Bloomberg News reported.

Companies used to avoid higher wages by moving further inland, but even rural villages are finding it difficult to muster up enough manpower to furnish factories. And now new government regulations and labor laws have companies retreating beyond the country’s borders.

Earlier this year, revisions to China’s labor laws greatly expanded the rights of workers and increased their bargaining power. A loophole that had allowed companies to layoff employees hired on temporary or fixed-term basis without compensation has been closed. Workers employed by a company for 10 years are now entitled to one month’s severance pay for every year worked. And employers are required to consult an “employee representative congress” with regard to changes in hours, benefits and compensation.

Willy Lin, managing director of Milo’s Knitwear (International) Group, told the Financial Times that the new labor law could increase costs by as much as 8% in 2008. However, in collusion with a higher minimum wage, increased social security payments and outside factors such as the appreciation of the yuan, Lin thinks the price paid by Chinese employers could be much greater.

“We estimate that, added together, labor costs [in mainland China] will be close to 40% higher for this year,” he said.

China is also phasing out its practice of charging lower corporate tax rates for foreign companies. And while it does so, other Asian countries are beginning to look more appealing to foreign companies.

Here are a few:

The Next China

Vietnam had a banner year in 2007, attracting $20.3 billion in foreign direct investment (FDI). But the country already expects to have accumulated another $23 billion in FDI in just the first half of 2008.

Canon Inc. (ADR: CAJ), for instance, is no longer expanding its operations in China, but it is doubling its Vietnamese workforce to 8,000 at a printer factory outside Hanoi, the New York Times reported. Both Nissan Motor Co. (ADR: NSANY) and Hanesbrands Inc. (HBI) and China’s own Texhong Textile Group Ltd. are also reportedly expanding their operations nearby.

“We found more ready availability of both land and labor in both Vietnam and Thailand,” Gerald Evans, president of Asia business development at Hanesbrands, told The Times.

Where as unskilled Chinese workers now earn $120 a month for a standard 40-hour workweek, factory workers in Vietnam make as little as $50 a month for a 48-hour workweek that includes a full day on Saturdays, the paper said.

Other facts to consider about Vietnam:

• More than half its population is under 25-years old.
• At 2%, Vietnam’s unemployment rate is among the world’s lowest, trailing only Azerbaijan, Cuba, Iceland, Andorra and Liechtenstein.
• Its labor and production costs are roughly one-third of China’s, making Vietnam a worthy contestant in the contest for new production sites.
• Its economy was able to shrug off the 1997 “Asian Contagion” financial crisis and averaged 5.5% growth for each of the next two years – while other nations in the region saw their own economies contract.
• Since January 2007, it’s been member of the World Trade Organization.
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