by Anthony John Agnello | March 3, 2011 6:00 am
Tech sector stock news tends to focus on the same select companies. Everyone is waiting for the moment that Apple (NASDAQ: AAPL[1]) shares finally break $400 – or $500. Can Google (NASDAQ: GOOG[2]) get back above $700 again? When will Netflix (NASDAQ: NFLX[3]) hit $300?
There’s still money to be made on the technology giants and tech sector in the United States, to be sure. But the price of entry is steep. An alternative for investors who still want to get in on ground floor of companies in comparable industries involves investing in a wholly different market. Namely, China.
An increasing number of consumer technology and Web businesses serving the Chinese middle class are being publicly traded in the U.S. stock exchanges. Here are five Chinese companies trading right now that have the potential to be the next Google, the next telecom like Verizon (NYSE: VZ[4]), or the next video game giant like Activision Blizzard (NASDAQ: ATVI[5]). Despite some volatility — a few of these stocks have had serious ups and downs in the past six months — there’s still great opportunity in each.
Here they are, the 5 China tech stocks with Apple-style growth potential:
The “Chinese Google” has been trading on the Nasdaq since 2005, and is a name familiar to most investors. But if you think Baidu (NASDAQ: BIDU[6]) is old news, note that its most successful period has only come in just the last twelve months as Google has moved out of China. Baidu was trading at just above $51 at the beginning of March 2010 and is now cruising around $120 – a 130% gain. After issuing strong fourth quarter earnings on Feb. 1, and raising its first quarter revenue guidance far above analyst estimates to between $360 and $371 million, BIDU is showing no signs of slowing down. The company’s continued dominance of the Chinese search engine market, thanks in no small part to Google’s trouble in the country, bodes well for Baidu.
Domestic video game companies Activision Blizzard (NASDAQ: ATVI[5]) and Electronic Arts (NASDAQ: ERTS[7]) know how beneficial a strong online gaming business can be with hardcore gamers. And Apple app developers know how a simple, fun game can be a huge profit-maker due to broad appeal to normal folks. Changyou.com (NASDAQ: CYOU[8]) does both of these facets very well. Via the Changyou online gaming business serves Chinese gamers hungry for World of Warcraft-style “massinely multiplayer” gaming as well as simple, casual and social games. CYOU has grown respectably since going public in the U.S. in 2009, hitting an all-time high of $39.72 on Feb. 2. Citigroup raised its target price to $44 after Changyou.com delivered better than expected fourth quarter results on Jan. 31. The trend line appears to still be moving up for CYOU.
Where Baidu is the Chinese Google, Youku (NYSE: YOKU[9]) is the equivalent of that company’s infamous video sharing website YouTube. Youku is one of two stocks on this list that has had little time on the NYSE so there’s not much performance to speak of. In the two and a half months since going public, the stock has been volatile, swinging between a low of $25.57 and highs near $50 on an almost bi-weekly basis. Strong fourth quarter earnings reported on Mar. 1, however, may indicate the stock is stabilizing. It’s worth noting that the growing strength of Youku’s other businesses like peer-to-peer file sharing software iKu means that Youku has far more on its side than just video dominance, and could see big growth if these other technologies catch on.
Sky mobi (NASDAQ: MOBI[10]) is a mobile app company that recently went public. Unfortunately, MOBI hasn’t been quite the star Youku has since going public on NASDAQ in December 2010. A major slump following its IPO had analysts predicting the worst for Sky mobi. That said, MOBI has made impressive gains recently, growing from a low of $4.98 to a high of $11.20 hit on Mar. 1. The mobile app store company isn’t going to challenge even Apple’s own App Store in China for revenue generated, but it could be an interesting company to watch.
A longtime member of the New York Stock exchange, don’t write off China Unicom (NYSE: CHU[11]) as a sleepy telecom with its best days behind it. True, since going public in the U.S. in 2000, the stock has traded between $10 and $20 per share for most of the past five years. But the future is bright for China Unicom though thanks to the growing popularity of Apple’s iPhone in that country. The September 2010 debut of the iPhone 4 was China Unicom’s most successful Apple smartphone release yet, selling out its initial stock in just 24 hours. Even at just 100,000 phones, that was a promising feat. China Unicom has an exclusive deal with Apple through 2012, so provided the Chinese public maintains interest in the iPhone, the mobile provider can maintain some positive momentum. The potential smartphone audience in China is huge, and China Unicom could see big potential if those new customers jump on board en masse.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
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