By Stockpickr Staff
Posted on May 13, 2009

The Chinese economy is a hot place to be right now. Last year’s excess manufacturing inventory, which served as a negative headwind for the country, is rapidly being worked off as China embarks on several important and lasting growth initiatives specifically targeted at consumer spending.

This helps to explain why the Hang Seng Index has risen about 38% from its March 9 bottom of 11,344.58, compared with a 35% rise for the S&P 500. Simply put, the Chinese government, led by Premier Wen Jiabao, has authorized market-friendly stimulus and financial packages with the goal of restoring economic and, more important, political confidence.

So far, it’s worked.

While everyone is worrying about where Baidu.com (BIDU) or Sohu.com (SOHU) or even Apple (AAPL) is going, there are other more direct value plays on the Chinese economy and its 1.2 billion people.

One company with huge potential is Linktone (LTON), one of China’s largest data service and telecom content providers.

Linktone closed on Wednesday at $1.44 per share, which equates to a market cap of about $61 million. Linktone also has $2.40 per share, or $101 million, in cash and zero debt. The icing on the cake is that the company is profitable and experienced double-digit client growth last quarter.

Even if Linktone trades just to its cash sitting in the bank, this represents a 61% or so return. If you assign even just a modest valuation to the company’s revenue, clients and growth rate, you are talking about a stock that could trade above $5 per share.

What is remarkable about Linktone is that despite the broader rally in Chinese stocks such as Ctrip.com (CTRP), China Precision Steel (CPSL) and Changyou.com (CYOU), shares of Linktone have severally underperformed the broader stock market recently.

Based in Shanghai, China, Linktone operates principally as a provider of wireless media, entertainment and communication services in China. For data content, Linktone has partnered with China Mobile (CHL) and China Unicom (CHU), and on the media-content side, Linktone has partnered with Time Warner's (TWX) Cartoon Network, Sony's (SNE) Sony Music, News Corp.'s (NWSA) Channel V, Viacom's (VIA) MTV China and 9Sky International.

Given Linktone's positive financial and demographic position, it is not unrealizable to think that shares of Linktone will at least trade back to cash level soon.