The post-zero-Covid rebound in China has so far been somewhat disappointing. Many believed that the removal of strict lockdown policies at the end of 2022 would lead to an economic recovery, but the rise has been rather muted.
Despite some decent economic data, other issues have emerged, such as high unemployment rates among the younger population, a deceleration in manufacturing operations, a tough housing market, and lingering geopolitical tensions with the United States.
These concerns have caused investors to shy away from Chinese stocks, but billionaire Ken Griffin is not in this camp. “There is a general level of uncertainty about the level of growth in China today,” Griffin noted recently, “we are actually more constructive on growth.”
In fact, the founder of hedge fund Citadel – a company overseeing around $57 billion in assets – goes on to add that “the scale and reach of the Chinese stock market is incredibly attractive”.
Griffin, who pocketed $4.1 billion in earnings last year, obviously deserves to be listened to on investment matters, and with that in mind, we dug into the TipRanks platform and pulled out 3 stocks that are ready to take advantage of Chinese growth. Experts at The Street agree these are names to own right now – all are currently ranked as Strong Buys by analyst consensus. Let’s check the details.
JD.com, Inc. (JD)
At the top of our list is JD.com, a leading e-commerce giant and one of China’s biggest companies. JD.com prides itself on its vast infrastructure, including an impressive network of over 1,500 warehouses, covering a staggering 31 million square meters, all dedicated to bolstering its online retail operations. With a market capitalization exceeding US$59 billion, JD.com generated a remarkable net income of over US$151 billion in the previous year.
JD.com mainly operates in the B2C field and its retail site offers a wide range of products in the Chinese market. Product lines include everything from clothing to cosmetics to electronics and even groceries, and the company offers same-day and next-day delivery services. The company’s logistics division is known as a leader in China’s online retail and delivery industry.
In its latest quarterly report, for 1Q23, JD.com posted revenue of $34.98 billion, a modest year-over-year increase of 1.4% and beating forecasts for $116.84 million. The bottom line figure, adj. EPADS (earnings per US filing share) of $0.69 beat expectations by 19 cents per share.
Investors were generally happy with the results, but offered only temporary respite from a pessimistic performance this year – in total, shares are down 34% in 2023. This opens up an opportunity for investors, however, according to the Morgan Stanley analyst Eddy Wang.
“JD’s stock price has significantly underperformed its e-commerce peers year-to-date, and is now trading at 6.7x 2023e non-cash non-GAAP P/E – an all-time low. “, writes Wang. “We believe the current valuation reflects overly pessimistic market expectations for the recovery of consumption in China and the recovery of JD’s GMV growth. We expect a further acceleration in JD’s GMV growth from 2Q23 and a more significant growth recovery in 2024. This therefore makes JD’s current share price and valuation levels very attractive to long-term investors. term, in our view.
Wang summarizes his position in JD stocks with an overweight rating (i.e. buy) and a price target of $60 which implies gains of around 63% over the next 12 months. (To see Wang’s background, Click here)
Overall, Wall Street is with the bulls on JD; the stock has 14 recent analyst ratings, with 11 buy and 3 hold, for a strong buy consensus rating. The average share price target of $60.14 is almost perfectly in line with Morgan Stanley’s outlook. (See JD Stock Forecast)
Trip.com Group (TCOM)
Sticking to the online business world, we will focus on the travel industry. Trip.com is a leading travel platform, providing users with a “one stop shop” for global travel. Users of the company’s brands can explore travel options, find inspiration for destinations, make informed decisions on the most profitable bookings, share their travel experiences and find hassle-free assistance even when they are on the way.
As a holding company, Trip.com operates four distinct brands: Trip.com itself, enhanced by Ctrip, Skyscanner and Qunar. Together, these brands have established themselves as the leading online travel site in China. Impressively, the company made nearly $3 billion in revenue last year, and its first-quarter results indicate it’s on course to top that number in the current year.
Trip.com had an outstanding performance in the first quarter of 2023, recording impressive revenue of US$1.3 billion. This exceeded analysts’ expectations by nearly $140 million and presented a remarkable 124% growth from the first quarter of 2022. It should be noted that this result even exceeded the first quarter of 2019 pre-COVID of the business. adj. EPADS hit $0.45, beating expectations by a solid margin of 19 cents. This robust profitability demonstrates a significant improvement over the break-even point recorded in the prior year quarter.
On the balance sheet, Trip.com ended 1Q23 with $9.9 billion in cash, short-term investments and other liquid assets. The company’s results came as China began to ease COVID restrictions and reopen both ordinary commerce and travel activities.
All of this caught the eye of 5-star Benchmark analyst Fawne Jiang, who sees growth as the key point for investors here. She writes, “Looking ahead, we continue to view TCOM as one of the top consumer games in China in FY23/24, given: 1) travel remains the sweet spot for growth consumption; 2) past investments will continue to pay off, driving outsized growth through higher online penetration and growing market consolidation, and 3) sustainable and improved operating leverage.
Quantifying his position, Jiang gives TCOM shares a buy rating with a price target of $55 to indicate confidence in a 56.5% upside on the one-year horizon. (To look at Jiang’s background, Click here)
Overall, of the 13 recent analyst analyzes on record for TCOM shares, 12 are to buy against a single take, giving the stock its consensus Strong Buy rating. TCOM is currently priced at $35.17 and its average price target of $45.93 suggests it will gain 31% in the coming year. (See TCOM inventory forecast)
Baidu, Inc. (BIDU)
We will end our list of Chinese stocks with Baidu, a major name whose size and scale have earned it exposure outside of China. Baidu is China’s answer to Google, the largest search engine operating on the Internet in the Chinese language. The company was founded in 2000 and, like its English-speaking counterpart, it has since diversified its businesses. The smaller of Baidu’s two main divisions, iQiyi, is Asia’s leading online TV streaming service, with more than 500 million monthly active users. The largest segment, Baidu Core, is the company’s main revenue driver, accounting for around 70% of revenue.
Baidu Core is the company’s provider of online marketing services, including internet search, as well as non-marketing value-added services and a number of AI-powered initiatives. These include the mobile ecosystem, which includes a dozen sophisticated applications; the AI Cloud, a set of services and software solutions; and Intelligent Driving & Other Growth Initiatives, which includes several mobility-related AI projects.
Baidu is now one of China’s largest AI companies and in recent months has cemented this position with the introduction of its ERNIE bot, a generative AI product based on the Big Knowledge Language Model. improved. The bot will be used to attract more users and customers, improve the base, and also become the base for a new AI ecosystem.
All of this translated into impressive results for Baidu in 1Q23. The company’s revenue, reported at $4.54 billion, rose a modest 1.3% year-on-year, but topped estimates of $230 million. The company delivered adj. EPADS of $2.34, $0.50 above Street expectations. Baidu also ended the quarter with deep pockets. The company’s total cash and liquid assets were $28.25 billion.
Checking again with Benchmark analyst Fawne Jiang, we find her noting cash generation and ERNIE as the main attractors for this stock. Jiang says of Baidu, “We consider BIDU shares to be uniquely positioned and a top choice in our space, given 1) its strong net cash balance (1/3 of its current market capitalization), 2 ) strong cash generation, 3) beneficial fundamental value from announcement to re-opening and 4) upside margin/potential upside gain. turn out to be slower than expected, the option of a technological breakthrough remains on the table.
These comments confirm Jiang’s buy rating on BIDU shares, while his price target of $210 implies a year-over-year upside potential of around 49%.
The Strong Buy consensus rating on BIDU is unanimous, based on 12 positive reviews on file. The stock is selling for $141.45 and its average price target of $190.64 suggests it will appreciate about 35% by this time next year. (See Baidu Stock Forecast)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.