OK, I’m always the first to admit it. When it comes to investing in Chinese stocks, I’m a bit of a skeptic. 

That’s why I’ve opted to get investment exposure to China only through mega-multinational companies such as PepsiCo (NYSE: PEP), McDonald’s Corp. (NYSE: MCD) or General Electric (NYSE: GE).#-ad_banner-#

I’ve always sided with the bears, who contend China’s economic numbers can’t be trusted because the command-and-control nature that the government has over the economy. However, I’m also a big fan of emerging markets and telecom stocks. That’s why I just can’t deny the relevance of state-owned China Mobile Ltd‘s (NYSE: CHL) role in this investment theme.

With nearly 600 million subscribers, China Mobile holds the position as the world’s largest wireless provider by market capitalization, with a whopping $227 billion. China’s economic growth has resulted in a rising middle class and telecom providers are usually one of the first sectors to benefits from this rise.

Big and getting bigger
With nearly six times the subscriber base of AT&T (NYSE: T), China Mobile is the market leader in wireless telecom services in China, with a subscriber base representing 43% of the country’s nearly 1.35 billion population. And with this number of clients, it doesn’t take much for this company to move the needle.

The company hasn’t reported 2012 revenue numbers yet, but the forecast is for a 2.9% increase in revenue to more than $84 billion from 2011. That’s about a $3-billion difference. Earnings per share (EPS) are expected to come in at $5.21 in 2012 compared with $4.80 in 2011. This means that a mere 2.9% increase in sales would grow EPS by 8.5%. 

The outlook for 2013 is equally encouraging, with the company expecting to grow revenue by 5.4% to $88.5 billion and EPS by 7.6% to $5.61.

3G, 4G and the iPhone
The backbone of China Mobile’s network relies on third-generation (3G) technology, but it continues to upgrade to the far-superior 4G network. This is a key component to the company’s growth strategy. And although the 2012 results haven’t been released as I’ve mentioned before, the company expects to have added 30 million 3G subscribers last year. That’s 5% customer growth — a phenomenal number for the wireless telecom business. The fast-rising 4G network demand will also be crucial to the company’s growth in 2013.

Another key to China Mobile’s growth this year is a pending deal to sell Apple’s (Nasdaq: AAPL) blockbuster iPhone. The company doesn’t currently sell the iPhone to its customers, so this deal would be an enormous coup for Apple and China Mobile. 

The technical and fundamental aspects of the stock look attractive. Shares are down nearly 45% from 2007 market peak of nearly $103. In addition, its balance sheet is steady. Its 10-year average return on equity (ROE) of 21.84%, extremely low 4.2% debt-to-capital-ratio, its enormous $52.8 billion pile of cash and a dividend payout ratio of 36% (extremely low for a telecom) put China Mobile at the top of my list.

Risks to Consider: As I’ve stated earlier, I’m skeptic on China’s economic future. But China Mobile is one of the biggest companies in the country. So although a swiftly-growing economy may develop in fits and starts, as it grows, so does the need for communication. Another inherent risk is the difference in reporting periods. U.S. companies report earnings and financial information on a quarterly basis, but China Mobile reports its numbers biannually. This makes information-gathering challenging. As Ronald Reagan used to say: “Trust, but verify.”

Action to Take — > China Mobile currently trades for about 11 times earnings with a forward price-to-earnings (P/E) ratio of 10.6 and an attractive 3.5% dividend yield. 

Investors who want to gain exposure to China’s growth while collecting a respectable income stream should definitely consider China Mobile. A 12-month price target of $72 makes sense based on the company’s strong cash position, consistent earnings growth and proven long-term fundamentals. Factoring in dividend income, total return could be more than 32%.