As Coke’s third largest market – trailing only the United States and Mexico – China is already a centerpiece of the company’s global growth strategy. When the company announced better-than-expected fourth-quarter results last month, it reported that China jumped 29% last year, while U.S. sales actually fell by 1%.

So it’s no surprise that China will overtake both Mexico and the United States to become the company’s largest market by 2018, Coke President and Chief Executive Officer Muhtar Kent told The Financial Times.

The $2 billion Coke has earmarked for China includes $90 million for a research-and-development center in Shanghai, the financial center on China’s East Coast. It also includes capital for new production plants, distribution infrastructure, and sales and marketing. However, it does not include Coke’s pending buyout of China Huiyuan Juice Group Ltd., China’s largest juice company.

Coke launched a $2.4 billion bid for Huiyuan Juice last September. At HK$12.20 a share, the deal valued Huiyuan at a 195% premium to its market value prior to the offer. But even though the deal is generous by most standards, government approval is still pending.

Huiyuan Juice is a household name in China, and controls 42% of the country’s pure-fruit-juice market. Regulators are debating whether a partnership with Coca-Cola – which controls 54% of China’s soda market – would be in violation of newly enacted monopoly laws. PepsiCo Inc. (PEP) has just a 31% share of China’s soda market.

The buyout is further complicated by strong nationalistic feelings, similar to those sparked in the United States when InBev NV went public with its bid for Anheuser Busch. However, many state-run Chinese companies have aggressively pursued foreign targets, which could make it hard for China to close the door on Coke.

In Australia, for instance, the government has a few Chinese investments coming under review:

• Hunan Valin Iron and Steel Group Co. is attempting to expand its stake in Fortescue Metals Group Ltd. to 17.4%.
• China Minmetals Corp. has launched a $1.7 billion bid for OZ Minerals Ltd.
• And Aluminum Corp. (ADR: ACH) of China plans to invest $19.5 billion in Rio Tinto PLC (ADR: RTP), the world’s third-largest mining company.

If Beijing sends Coke packing, it could send a message to the rest of the world that China plays by different rules at home than it does abroad. Many investors are also waiting on the Coke deal as a barometer of China’s attitude towards inbound M&A deals, and Beijing’s willingness to cooperate.

The deadline for the deal’s completion – March 23 – is a little more than a week away. And while China Commerce Minister Chen Deming has said that Beijing’s decision “will not be influenced by any (external) factors,” some analysts think Coke’s recent announcement could help tip the scales in its favor.

“Coca-Cola’s investment is a positive for the Huiyuan acquisition,” Kevin Luo, a consumer goods analyst with Guotai Junan Securities HK Ltd., told Bloomberg News. “This investment will help create jobs, which would obviously be welcomed by the government, so even though it won’t have a direct impact on the acquisition’s approval, it can’t hurt.”

A recent government survey showed that slightly more than 15% of China’s 130 million migrant workers – about 20 million people – had lost their jobs and returned to the countryside by the start of the Chinese Spring Festival on Jan. 25.

Regardless of the deal’s outcome, CEO Kent says Coke has only “scratched the surface” of the Chinese market and will continue to further its presence in the region.

“Coca-Cola is proud to be a long-term partner of China, and our commitment and confidence in China never wavers,” Kent said.

Long History

Coke has a long history in China. The company first opened bottling plants in Shanghai and Tianjin in 1927. A third plant opened in Qingdao in 1930, according to the Asian Institute of Management’s AIM Center for Corporate Responsibility.

The company re-entered China in 1979 – after a three-decade absence – following the re-establishment of relations between China and the United States. In fact, Coca-Cola was the first U.S. consumer product to return to that promising Asian market.

It had its first new plant up and running in China a year later. By the end of the 1990s, it had several dozen plants and bottling operations in that market.

Coke Rides International Growth to Profit

In announcing the better-than-expected results last month, Coca-Cola reported its ninth-straight quarter of double-digit earnings per share (EPS) growth and third straight year of meeting or exceeding its long-term-growth targets. Excluding one-time items, the Atlanta-based company’s 64-cent EPS represented a 10% gain from last year’s fourth quarter.

For all of last year, cash flow from operations was $7.6 billion, an increase of 6% from the $7.1 billion recorded for 2008.

And at a time when many U.S. companies are cutting their dividends – or eliminating them altogether – Coke boosted its payout by 8%.

“Simply said, we were built for times like these,” Coke CEO Kent said during a conference call. “We enter 2009 with the same mindset as one year ago: Deliver on a consistent set of strategies and initiatives that provide us a disciplined road map to operate in the best consumer business in the world, a business with significant long-term opportunities.”

A large part of Coke’s growth can be attributed to the company’s international sales, which – with a boost from China – delivered 6% growth for both the fourth quarter and full year.

“Because 75% of the company’s sales come from outside the United States, this is the kind of stock that’s worth owning long-term,” Money Morning Contributing Editor Horacio Marquez said in a recent ‘Buy, Sell or Hold’ column. “So, if you are worried about the housing meltdown and the prospects for the U.S. economy, this soundly-managed U.S. company already gives you global diversification in the places that matter most today – the emerging markets.”

Source: Hot Stocks: Coke’s $2 Billion China Play Will Add Fizz to its Profits

In a separate story today (Wednesday), Wall Street banking analyst David Trone said that he expects higher credit costs and additional losses to force Citi to take $3 billion in write-downs in the year’s final quarter, a realization that prompted him to boost his quarterly loss estimate for the company and cut his target price for the stock.

“The key question is whether management will be able to continue to find buyers for business units, which is necessary to fortify the capital base against further credit losses and write-downs,” Trone, an analyst with Fox-Pitt Kelton Cochrane Caronia Waller, wrote in a research note to clients.

Fox-Pitt boosted its quarterly loss estimate for Citigroup from its prior projection of only 8 cents a share all the way to 79 cents a share. The brokerage then cut its profit estimate for 2009 from its earlier estimate of 69 cents per share all the way down to 28 cents, Reuters reported.

Trone, who rates Citi shares as performing “In Line” with the general market, cut his target price on the shares from $20 to $16. From Tuesday’s closing price of $8.36 a share, even that lower target price would represent a return of 91%.

Worries about Citigroup’s problem assets will continue to weigh down investor confidence, Trone wrote. Thus, while Citi is definitely a “cheap” stock by one key measure, it isn’t necessarily a bargain.

“Citi trades below tangible book, although we believe this is at risk given still-large problem asset exposures,” Trone wrote.

Citigroup’s shares have traded as high as $35.29 in the past 52 weeks. Its market capitalization (market cap) – the actual value of a publicly traded company – has plunged from $195 billion at the stock’s 52-week high to just under $41 billion today.

A new report states that Citigroup has slipped to the fifth-largest U.S. bank by market value, falling behind U.S. Bancorp (USB). The top five are JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), U.S. Bancorp and Citigroup. Less than two years ago, Citigroup was on top of that list.

As for the asset buyback, Citi said it’s moving the structured investment vehicle assets into a portfolio of assets held for sale. The transfer allows the SIV funds to fully repay maturing debt obligations. It will be accounted for as a “cashless” transaction, since the funds were essentially already on Citi’s balance sheet. In fact, the assets will be labeled as being “available for sale” basis, meaning changes in their value will affect the company’s balance sheet equity – but not its earnings, Reuters reported.

Back in December, Citigroup agreed to support the SIVs, which at the time held roughly $49 billion of assets. At one point, the bank’s SIVs were actually “off-balance-sheet” entities, holding roughly $100 billion in assets.

A SIV is a fund that borrows money by issuing short-term securities at a low interest rate and then lends that money by purchasing long-term securities at higher rates of interest. If managed correctly, fund investors can make a profit from the difference.

SIVs proliferated, and were in widespread use by investment banks and other financial institutions. But they ran aground when the credit crisis caused the demand for short-term bonds and commercial paper to evaporate. SIVs saw the value of their holding plummet, forcing institutions such as Citi – which had been operating the funds as off-balance-sheet funds – to prop them up with financial support.

This is the latest move Citigroup – one of the hardest-hit by the worldwide financial crisis – has been forced to make as it struggles to get back into the black. Citi has notched losses in each of the past four quarters, including a $2.8 billion loss in the third quarter, and has taken in excess of $40 billion in write-downs.

On Monday, Citi unveiled plans to cut more than 50,000 jobs in the “near term” and slash expenses by 20% to preserve capital as it faces a global slowdown that’s expected to push well into 2009. The cuts are on top of the 23,000 jobs eliminated so far this year and are part of Chief Executive Officer Vikram Pandit’s plans to whittle the bank’s work force down to 300,000. By the time Pandit puts down the corporate-cost-cutting machete, he’ll have lopped off about 20% of the company’s work force.

At its peak at the end of 2007, Citigroup had a work force of 375,000.

Just last week, as Money Morning reported, Citigroup announced the release of 10,000 employees, and said it was boosting interest rates an average of 3% for about one-in-five of its credit card holders.

Source: Hot Stocks: Citigroup to Buy Back Billions in SIV Assets, May Face Another Write-Down

“Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the seventh installment of this ongoing investment series.

Felipe Reis, an analyst for Banco Santander SA (ADR: STD), yesterday (Monday) slashed his target price for the U.S.-listed shares by more than half, stating that the worldwide outlook has become “more challenging.”

Reis, who previously had placed a year-end 2009 price target of $40 a share Vale’s U.S.-listed American Depository Receipts (ADRs), now says the shares of the Rio De Janeiro-based mining-and-metals heavyweight will trade at $18 at next year’s close. If you’re keeping score, that’s a reduction of 55% from his prior target. But it still represents a 59% gain from yesterday’s closing price of $11.32 a share.

”We are adjusting our estimates for Vale in order to reflect the more challenging scenario in the commodities market,” Reis wrote in a research missive, noting that the reduced target price takes into account “the significant global economic slowdown.”

In related news yesterday, Merrill Lynch & Co. Inc. (MER) cut its 2009 economic-growth forecast for Brazil to 2.9%, from a previous estimate of 3.1%, as the lagging effect of scarcer credit may be deeper than thought.

The Brazil exchange-traded fund, theiShares MSCI Brazil Index (NYSE: EWZ), was the focus of a recent Money Morning “Buy, Sell or Hold” column, and soared as much as 42% in six days after it was recommended as a “Buy.”

Source: Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59% Gain, Analyst Says

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the sixth installment of this ongoing investment series.

The stock market has already factored in the challenges facing the travel and retail sectors into Priceline’s stock price, Reuters and Barron’s both reported.

According to Barron’s, as the current financial crisis deepens, consumers are going to devote an increasing amount of time to their personal and household spending budgets – a point that Money Morning has repeatedly made as part of its ongoing “Credit Crisis Safety Plays” series. As those consumer concerns about spending and household budgets increase, Priceline’s name-your-own-price business will become a bigger draw, Barron’s, the popular investing weekly, said in its most recent edition.

Barron’s also said Priceline has little debt and plenty of cash on its balance sheet, including $282 million in free cash flow this year. At Friday’s closing price of $54.57, Priceline was trading at 8.8 times projected profits for 2009. That’s well below the average Price/Earnings (P/E) ratio of 21 for Internet retailers, and 9.0-plus for the travel and leisure sectors, Barron’s reported.

Priceline also has a tendency to report upside earnings surprises. In each of the past four quarters, the Norwalk, Conn.-based Priceline has beaten analyst estimates by amounts that range from 9.9% to as much as 27% (Please see accompanying chart).

Strategy Shift a Major Plus

According to noted travel writer Arthur Frommer, Priceline.com was largely once just “a rather exotic service meant only for the gamblers among us – the folks willing to accept the risk of a 6 a.m. flight or an out-of-the-center hotel. By featuring its bidding process (‘name your own price’), Priceline.com came up with absurdly low air or hotel rates, but with the drawback of sometimes producing a dawn departure, a multi-stop flight or a badly located hotel.”

But that’s changed. In a story he penned for TheLedger.com, Frommer said that while Priceline “still maintains its ‘name your own price’ option – the way to get the very lowest prices imaginable - it now also offers the same full-disclosure airfares and hotel rates that Web sites like Hotels.com, Expedia.com (EXPE), Travelocity.com, Orbitz.com (OWW) and others offer.”

The bottom line: Priceline.com often beats the prices offered by these other “full-disclosure” Web sites – and without charging the extra fees that these other sites hit users with, Frommer wrote.

The economic slowdown may also benefit Priceline. The financial crisis has hit the travel sector and the airlines hard. So the major airlines are now using Priceline.com as a way of disposing of their unsold seats – “of which there are a great many,” Frommer wrote. But that’s good news for the more-adventurous traveler, since the “last-minute” airfare deals feature has returned to the Priceline.com Web site, Frommer said.

Priceline is now going global. With its recent acquisition of European hotel search engine called Booking.com, Priceline.com is also has become a standard full-range search engine for hotel rates both in the United States and abroad. Booking.com is the largest of the hotel booking sites in Europe, meaning users will find offers from some of the “more interesting, nonchain, boutique-like hotels that are often absent from American hotel search engines.”

Master Marketer

When it launched its somewhat campy television ad campaign, Priceline.com was smart enough to go after the king of camp himself – Shatner, whose entire TV life has been spent playing such campy characters as Capt. James T. Kirk (Star Trek), police Sgt. T.J. Hooker (T.J. Hooker) and legal legend (in his own mind) Denny Crain (Boston Legal). Shatner’s performances as the “Priceline Negotiator,” have spawned kudos both for Shatner and for Priceline.

Curiously for Shatner, however, it’s original “Star Trek” series veteran Leonard Nimoy (Mr. Spock), and not the irrepressible Shatner – described by one writer recently as the “master of the strained staccato delivery” who landed a role in the new Star Trek (2009) movie due out next year.

But Shatner does have a new talk show starting: Shatner’s Raw Nerve debuts Dec. 2 on the Bio Channel, media reports state.

Source: Hot Stocks: Priceline.com Shares Poised to Beam Up, Barron’s Says

“Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the fifth installment of this ongoing investment series

This from Investment U:

The other day, a neighbor knocked on my door to ask me if I could do a welding repair on his riding lawnmower. Welding is tricky business, and it’s more art than science. Making a good strong weld takes many hours of practice making bad ones. I can personally attest to this.

My wire-feed welder surrounds the welding area with carbon dioxide gas (CO2), which keeps oxygen away from the weld site. This results in a strong professional looking weld.

As I started the job, I realized I was out of CO2, and would have to make a quick trip to my local distributor, Airgas Inc. (NYSE:ARG) for a refill. The reasons I go there are the same as why you need to take a look at this unique company.

I’ve never been when they weren’t busy – this visit was no exception. And for good reason: Airgas is the largest distributor of packaged medical, industrial and specialty gases in the country. The company sells over 43 specialty gases from nearly 1,100 retail and service stores nationwide from their base in Radnor, Pennsylvania.

Airgas Inc. – The Largest Producer of CO2 & Nitrous Oxide

Founded in 1982, Airgas is the largest producer of CO2 (both liquid and gas), dry ice (frozen CO2) and nitrous oxide (more commonly known as laughing gas). Airgas maintains over 30 regional specialty gas research and development laboratories and operates more than 150 gas filling stations.

• CO2 in its various forms is used in the medical, industrial and food preparation industries.
• Nitrous oxide is used in the medical and dental industries as an anesthetic and also as an aerosol spray propellant.

Airgas manufactures its various gases at 14 air separation plants located around the country. They operate 19 plants that manufacture acetylene – a highly explosive, specialty gas used primarily by the chemical industry to synthesize other chemicals or for high temperature welding and cutting.

In addition, Airgas also sells gas related products such as regulators, flow meters, check valves, gauges, purifiers and gas detection equipment. It maintains a full line of welders and welding equipment as well.

Business Couldn’t Be Better For Airgas Inc.

Business couldn’t be better for Airgas Inc. – even in this tough economic environment. On October 23, Airgas announced record earnings and strong growth in sales and operating income for its second quarter ending September 20.

Quarterly earnings were up 44% to $72.8 million on a sales increase of 15% to $1.2 billion – fueled by acquisitions, an increase in same-store sales of 8% and a 12% hike in gas sales and cylinder rental.

Peter McCausland, the company’s CEO since its inception, said, “We are performing very well in a moderating economic environment, and our expanded offering that targets infrastructure construction has been successful in gaining new business, particularly in the power and energy sectors.

“About 40% of our sales come from our strategic products, which posted 11% organic growth in the quarter and are focused on the medical, life sciences, research, environmental and food and beverage markets.

“Acquisition activity has been strong in the first half of our fiscal year, with a total of six acquisitions and $142 million of acquired annual revenue to date. We are expanding returns by effectively integrating acquisitions and leveraging our extensive distribution infrastructure.”

Airgas Inc. Increases Quarterly Dividends

Things are going so well, in fact, Airgas Inc. reiterated its 2009 full year earnings guidance of $3.30 to $3.40 per share, and increased the quarterly dividend 33% to $0.16 per share.

The company continues to generate strong free cash flow, even while funding numerous plant projects that will be operational in the next year. Airgas is somewhat insulated from the economic slowdown since many of its products are used in maintenance and repair of aging infrastructure, and in the medical and food industries.

Shares of Airgas hit a 52-week low of $27.09 on October 24 and have soared 37% in just the last week. At present levels, the stock trades at a very respectable P/E of 12 and sports a 1.72% dividend yield.

As many of you who’ve been regular Investment U readers know, I’m a big fan of the infrastrucutre and energy sectors. As we wait for the broader markets to recover, the infrastructure service sector looks like it will be a great place to invest. Investors who want more exposure to this sector might want to consider adding a few shares of Airgas to their portfolio.

Source: Airgas Inc. (NYSE: ARG): This Company’s on Fire…

This is one area where you absolutely want to be the first guy in the door, so you can be in the best position to grab the most money once the dance floor fills up.

For months now, I’ve perched myself up on my soapbox, trying to analyze the current market conditions. It’s often been a pretty lonely place. You see, while my analysis is on the mark most of the time, I often show up early to the party. So early, in fact, that the invitations haven’t even been sent yet!

But you know what? That just means more profits while the others catch up. Let me give you some examples – and show you the next best place for profits…

CEO Spends $4.58 Million On Massive Insider Buy

It could be the greatest tip off of all time. The CEO of a small, fast-growing company dipped into his own wallet to buy $4.58 million of his company’s shares… and not in some secret insider deal… but at the market. Wow! What set off the spending spree? This CEO’s company is in a brand new federally funded sector… one that didn’t exist seven years ago. Huge amounts of dollars are flowing in. And get this. He paid $15 a share, but the recent market swoon means you could pay a little as $12.50. This is a pure double up-situation.

Here’s how…

Jump In Early And Get The Pick Of The Profits

While every investor dreams about uncovering “the next Microsoft,” investing in it very early, and riding it all the way to the bank for millions, it doesn’t happen often. But many times, it’s not just a case of identifying hot stocks. It’s about spotting hot trends.

For example, in late 2005, we jumped on board a fast-growing technology company called Immersion (Nasdaq: IMMR) – a leader in the “haptics” and force-feedback field. We’ve since written about it here before – in February 2007 and May 2007.

May 2006, I wrote about the increasing shift towards the ethanol industry and the investments within it. I then made a specific recommendation for Xcelerated Profits Report subscribers on a “stealth” ethanol play (in order to reduce our risk in what was, and still is, a young and volatile area), which we cashed out of for a 35% gain.

In October 2006, I sounded the alarm bells about an impending real estate collapse and then followed it up with more advice in June 2007.

We also grabbed 54% gains in August 2007 on the ultimate contrarian play at the time: Downside in the Chinese market (via the iShares FTSE/Xinhua China 25 Index – FXI). Believe me, very few people were calling for a China decline back then – and you should have seen the baffled enquiries I received from some colleagues when I recommended the play!

So how about the current market? What opportunities do we have now?

Rookies Sell In Fear… Smart Guys Grab Bargains: This Confidence-Starved Market Presents Major Buying Opportunities

While you’ll find many commentators labeling the current crisis as one of liquidity, I look at it differently. I’m adamant that it’s more of a crisis of confidence, not liquidity. After all, while fear and greed are the two primary forces that drive the stock market, if investors don’t have confidence, then there’s a problem.

Here’s what many rookies don’t understand, though: The huge dips that we’ve seen in the market – especially in some of the financial sector stocks – have presented great opportunities to buy, not sell.

Here’s why I take this contrarian stand on financials, housing, China, and the U.S. dollar: Because of my experience and the knowledge that the system is rigged in favor of the opportunistic investor.

And here’s one area with some major moneymaking opportunities…

Five Reasons Why Small-Caps Suffer More Than Others

If you’ve looked at the small-cap sector recently, you’ll know that it’s suffered a serious pummeling over the past six months.

By definition, small-cap stocks are those with a market cap of less than $2 billion. But many have endured declines between 30% and 60%. This is much worse than their large-cap peers and the major stock indexes. But this isn’t surprising. Here’s why:

1. Small-Caps Are Less Liquid: When investors stop buying and start selling, small-caps do not have the kind of institutional support to avoid huge price movements, or set a floor under the price. Consider that when a large-cap like Lehman Brothers can fall 40% in a day, only to rise 30% the next, the small-cap market is exhibiting “normal” volatility.
2. Economic Slowdowns Affect Small-Caps More: By their very nature, small-caps are companies that are just beginning to grow. Any dent in the economy will dent their efforts.
3. Small-Caps Move Higher During Bull Markets: This being the case, it makes small-caps attractive targets to sell on the way down because they have more built-in profits.
4. Small-Cap Investors Are The Market’s Biggest Gamblers: They buy on the way up, margin at the top and sell at the bottom.
5. The Small-Cap Market Is Awash With Rumors And Crooked Players: This is the nature of the small-cap game. When share prices fall, market makers and short-sellers step in and exacerbate it. Consider the Bear Stearns fiasco. If “they” can take the Bear down to $2, they can certainly take Small-Cap Stock XYZ down, too – and with a lot less effort. The market is not efficient… you can bet (or lose) your bottom-dollar on that.

Four Ways To Pick Out Big Opportunities From Small-Caps

I know… it’s sounds totally backwards and ultra-contrarian. But when small-cap stocks collapse en masse – as they are doing right now – it gives you some huge opportunities.

You see, while you can still buy big caps and make money, if you really want to smash the ball out of the park a few times, there are no better bets right now than some select small-cap stocks. Here are four factors to look for when separating the great from the grisly:

1. No Fundamental Change In The Business: While there might be a slight slowdown for a couple of quarters, if the main business model stays intact, this is usually just part of the process. Companies to consider: Healthcare firms and medical device makers.
2. Strong Balance Sheet & Lots Of Cash: Quite simply, not only does this mean a small-cap firm is better-equipped to weather a financial storm, it also means that it will have plenty more opportunities when the economy picks up. Companies to consider: Certain small-cap technology firms.
3. Innovators In The Field: Firms that offer added value to bigger companies competing for market share are a major attraction. Companies to consider: Specialized technology firms and those with patented ideas.
4. Takeover Targets: Small-cap companies that enjoyed healthy sales growth before the crisis and were providing services, technology, or even drug partnerships to bigger players make for tasty takeover targets. Sometimes, it’s cheaper to buy your supplier when the price is right. Companies to consider: Ones that boast strong technology platforms, or medical successes

This Crisis Will Pass… Pick Up Some Small-Cap Bargains While You Have The Chance

The bottom line is this: While the current crisis is significant, it will be solved given time. However, it’s during that time that you can either take the opportunity to make money, or just temporarily sit on the sidelines and watch.

And yes, it may be stressful at times. But like I said, I often hit the stock market parties early, so I won’t blame you if you watch! That’s because while some opportunities are very exciting, I often take the elevator down a few floors before zipping higher to the penthouse.

And believe me… small-caps are on sale right now. Pick your targets carefully and count on history and the business cycle to guide you to profits in the months and years ahead.

In a market like this, you have to have staying power – and selling into weakness will damage your portfolio. When you feel that queasy feeling that only small-cap investing can produce, dig deeper… it may be time to buy.

Until next time…

Karim