Investors used the recent weak economic data from China as an excuse to take profits in some of the leading Chinese stocks. This has included the top Chinese internet plays like Qihoo 360 Technology (QIHU) and YY Incorporated (YY).
I think this is a huge mistake and aggressive investors should be using any additional weakness to buy these powerful stocks. As China continues to develop more of a middle class, internet and mobile device usage is booming and these companies are in the forefront of one of the most powerful trends in today’s stock market.
They have done very well in the past year but based on the fundamentals the best may be still to come for these Chinese internet stocks to buy.
Let’s take a closer look at both of these Chinese internet giants:
Chinese Internet Stocks to Buy: YY Inc. (YY)
YY operates an online social platform in China and is seeing extraordinary growth right now. In addition to its YY client product that offers access to social media groups, they also offer Web-based YY that enables users to conduct real-time interactions on the Web without any downloads or installations, as well as Mobile YY, a smartphone application.
Growth has been spectacular for YY, with fiscal year 2013 showing revenue growth of 122%, and non-gaap earnings rising an impressive 214%, all compared to 2012 results. Analysts that follow the company expect earnings growth for this company to be a stunning 46% on average for the next five years.
In addition to the strong growth in music and entertainment offerings that the company has seen on its platforms, online education is a new growth driver for this company. They began offering a new online education app called 100.com last month, offering multimedia large-classroom tutoring lessons on standardized tests. Several thousand teachers contacted the company within a week of the product announcement, and they should be able to attract the best teachers in China to the app.
The stock has been ranked an A since its debut in Portfolio Grader back in November and remains a strong buy at the current price. Any weakness should be treated as a buy the dip opportunity in this aggressive stock.
Chinese Internet Stocks to Buy: Qihoo 360 Technology (QIHU)
Qihoo 360 provides Internet and mobile security products in China, and is also seeing spectacular revenue and earnings growth.
In the company’s latest earnings report they had 260% earnings growth and 115% sales growth on a year-over-year basis. They also blew away the analysts estimates for both with an 89% positive earnings surprise which was its third consecutive upside surprise.
QIHU had a record number of on number of monthly active users of its PC-based products as well as total smartphone users of its mobile security products. They are now the market leader in China for smartphone security with 70% of the market.
The stock has earned the highest grade of A from Portfolio Grader since last July and the still improving fundamental makes the stock a strong buy at the current price.
The Chinese internet market is going to continue growing at a high rate for several years still to come. The leading companies in this sector should see the type of best of the best fundamentals that keep them up near the top of our buy list for an extended period of time. Any weakness should be seen as a buying opportunity for these A rated stocks.