High-P/E China stocks have been hit particularly hard during the sell-off in the past few weeks. This is because of the large number of new, high-valuation Chinese Internet IPOs that took place since April.
Led by Renren (NASDAQ: RENN) and Qihoo 360 Technology (NYSE: QIHU), these new IPOs were priced at extremely high valuations. Many of these stocks have sold off 40% or more from the closing price on their first day of trading.
These new Chinese high-flying IPOs also cannibalized investor capital that supported other Chinese growth stocks. As a result, all high-P/E China stocks — regardless of quality — have been hard hit in the past few weeks.
China Stock to Buy #1 – SINA Corporation (SINA)
SINA Corporation (NASDAQ: SINA) has declined sharply in the past couple of weeks, leading the sell-off in Chinese Internet stocks. SINA recently disclosed that New-Wave Investment, a company controlled by SINA management and venture capitalists, plans to sell 1.25 million SINA shares.
The selling has been under way for several days now. I think this may be mainly Sequoia Capital taking profits. In addition, SINA management still owns a substantial stake in the company.
Judging by the market action — with the selling starting on June 3 and knocking SINA down from $125 to about $80 — the bulk of the selling is already over. Based on the trading volume, it was clear that a major holder is selling, but I did not expect this deep of a sell-off. This is a volatile name right now, but I think that the stock is currently oversold.
In addition, the company announced it would be launching an English-language microblog aimed at users abroad, entering a market dominated by U.S.-based Twitter. This is an interesting development that may lead to more users for the SINA’s Weibo platform.
China Stock to Buy #2 – 51Job, Inc. (JOBS)
51Job, Inc. (NASDAQ: JOBS) was mentioned in a negative research report regarding the human-resources and employment-services industry and the high valuation of companies in the sector. As a result, JOBS has sold off to the tune of 15%.
However, though the jobs market is certainly weak in the United States, the Chinese job market is much stronger. As a result, I remain long-term positive on this China stock.
China Stock to Buy #3 – Corporation Of China Limited (ACH)
Corporation Of China Limited (NYSE: ACH) rose recently on news that its parent company took control of five rare-earths producers in Jiangsu in an effort to boost its own production. ACH’s parent will now have an annual rare-earths production capacity of 34,700 tons. Since the announcement, the stock has been choppy.
Though I am still not sure whether the publicly listed entity will have any rare-earth assets, I believe these assets nevertheless will benefit ACH in the long run, and the parent company could inject some of the assets into the listed entity.