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In China, Focus on Focus Media

As the No. 1 advertising company in China's fast-growing Internet, mobile, and poster/panel markets, Focus Media Holding (FMCN) will benefit greatly from the 2008 Summer Olympics. Right now, Focus' sales and profits are expanding at more than 50% annually. "We are confident Focus can keep growing that fast for the next two years at least," says Tian X. Hou of Pali Capital, which owns shares. She says its dominance in "out-of-home" advertising, including ads in elevators, supermarkets, and cell phones, has let Focus raise prices and expand rapidly, particularly in Web advertising. Shares of Focus doubled, from 33 at the end of 2006 to 66 this Nov. 6. Now at 57.48, the stock should hit 100 in 12 months, says Hou. That's about 35 times her 2009 earnings forecast of $2.83 a share. Focus' peers trade at a price-earnings ratio of 35. Hou's forecast for 2008 earnings is $2.06 a share, up from $1.51 in 2007. Focus earned 91 cents a share in 2006.

Part of its fast growth is due to acquisitions, and this "has allowed Focus to cast a wide net to control various ad markets," says Hou. Jason Brueschke of Citigroup (C), which has done banking for Focus, rates the stock a buy. He says the company's diversified platform of new media networks is well positioned to take advantage of China's exploding market. Focus, he adds, effectively has a monopoly in certain ad segments in China.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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