This month, I am highlighting the Guoco Group (0053:HKG).

The Guoco Group is an investment and holding company providing four core business services: proprietary asset management (headquartered in Hong Kong), property investment and development, hospitality and leisure business and financial services.
Its financial services division includes banking, insurance, fund management, stock and commodity brokering and investment advisory. And let's not dismiss Guoco's asset management.
In a recent filing, management noted that equity prices generally were at high levels with stretched valuations. "As a value investor," it said, "it had become increasingly more challenging to find attractively priced investments in the past few months. As a result, we adopted a more defensive stance in managing the portfolio. We reduced the size of our investment that was trading oriented and spent more effort in identifying stocks with longer-term growth potential that were reasonably valued."

I've said time and time again, there's not much value floating around world markets these days.
Principal development operations take place in Hong Kong, China, Singapore, Malaysia and the United Kingdom.
Since its inception in 1976, the property development group has established a presence in Singapore, mainland China, Malaysia, India and Vietnam.
Its exposure in mainland China remains focused on the northeast section of the country that includes cities like Beijing, Nanjing, Shanghai and Tianjin.
The principal operations of both Cheung Kong (0001:HKG) and Henderson Land are focused on Hong Kong and the greater Guangdong province. Guoco's presence on the northeastern part of mainland China diversifies our property development portfolio nicely.
However, the principal bulk of the company's $5.66 billion annual turnover stems from its Hong Kong and London operations. You may be saying, "What about the People's Republic of China?"
It's true the Chinese economy grew by an estimated 10.7% in 2006. The central government set a more modest growth target for 2007, but despite best intentions, the economy is likely to enjoy a fifth straight year of double-digit growth.
Guoco's management notes Beijing's intentions to cool the property sector. Property speculation in China has taken off in the latter half of this decade much like dot-coms did in the latter half of the last decade. Guoco's management seems to be stepping into the PRC with prudent caution. We laud this strategy. China's long-term development needs won't be met overnight. We firmly believe it's best to stay the course. Establish contacts, develop a track record and proceed slowly. That's the Chinese way.
The group appears to be instigating a similar strategy in both Malaysia and Vietnam.
Some Financial Highlights
Guoco Group has produced an average annual EPS growth of 69% over the past 4 years
The company produces average net margins of 20%
The balance sheet carries roughly twice as much cash as total liabilities
The share price trades below book.
You can buy the stock for 90 cents on the dollar and less than 7 times TTM earnings. That's not bad considering the stock offers a 16.2% earnings yield on a company that carries nearly twice as much cash as total liabilities.
Property development stocks are a little different. Their main asset is real estate. They typically don't produce income streams like your typical industrial stocks.
We don't want to pay more than 1.5 times net asset value (book value) for these types of securities. So that metric gives us a buy-up-to price of $169.

A wise man once said…"Obvious prospects for physical growth in a business do not translate into obvious profits for investors."
The author of this quote is Benjamin Graham, mentor to Warren Buffett, and undeniably one of the greatest investors who ever lived. Graham emphasized the importance of understanding the underlying value supporting a company's stock.
He recognized the fundamental mischaracterization of the term "investor." For Graham, many so-called "investors" were truly nothing more than speculators, individuals looking for a "shortcuts" to superior returns. Graham uderstood that the majority of individuals lacked the patience and discipline required to succeed in the world of investing.
As an investor, you need to recognize that emotion should yield to reason. But more often than not, we confuse emotion (i.e., greed) for logic.
Graham calls attention to the demand for air transport stocks in the '40s and '50s. Everyone knew (and rightly so) that air transportation was here to stay. It didn't take an expert to forecast the enormous long-term growth rates for air travel in the second half ofthe 20th century. Consequently, air transport stocks were the hot investment.
But as you know, passenger growth certainly isn't the only denominator driving an airline's profit. The airline business has horrible margins. Fuel costs, fierce competition and labor disputes have hindered the industry since its very inception. Even though predictions on passenger growth rates proved true, the business itself never offered significant returns. "In the year 1970, despite a new high in traffic figures, the airlines sustained a loss of some $200 million for their shareholders," wrote Graham.

And that's the point of the opening quote.
A great growth story does not necessarily equate to a great business.
What was it that English entrepreneur Sir Richard Branson said? "If I was a businessman, or saw myself as a businessman, I would have never gone into the airline business."
But recognizing a story where growth and value intercede doesn't happen all that often. But when they believe, that's the moment you can substitute "speculator" for "investor."
And when they don't, it's time to reform the art of positive non-intervention…

It's time to practice the virtue of doing nothing.