China stocks are booming right now, defying previous predictions of a slowdown. In fact, China’s stocks jumped to their highest level in almost 20 months on Friday, boosted by blockbuster earnings reports from major Chinese companies. The Shanghai Composite Index is now at 3,362 and according to Morgan Stanley, it can reach 4,400 by the end of this year. That’s a massive 42% growth from the start of 2017.
Tech-savvy Chinese consumers are now returning to spending rather than saving, say commentators. Multi-purpose internet giants can easily tap into this trend, while increasingly monetizing their reach through advertising. This means there is potential for big money-making. And by investing in U.S.-listed shares of Chinese companies, investors can easily profit from this developing momentum.
So which Chinese stocks are likely to benefit from these trends and make the most compelling opportunities?
I used TipRanks to pinpoint top stocks that are big in China and have the full support of the Street. By scanning all the latest analyst ratings on over 5,000 stocks, TipRanks generates a consensus analyst rating for each stock. The three stocks I select below all have a very bullish ‘Strong Buy’ analyst consensus rating, based on the last three months of analyst activity. I also show the average analyst price target, which gives you an idea about the kind of return each stock is expected to generate over the next year.
Now let’s take a closer look at the three top stock picks:
Chinese Stocks to Buy: Alibaba (BABA)
China’s largest e-commerce company, Alibaba Group Holding Ltd (NYSE:BABA) has roughly 500 million active annual consumers on its Chinese retail marketplaces. And to fulfill the orders of all these consumers, BABA delivers an average of nearly 55 million packages a day.
The hard work is paying off: Alibaba has received an incredible 17 back-to-back buy ratings from the Street in just the last three months. These analysts are predicting that, on average, the stock has just over 10% upside potential for the next 12 months from its current share price of $168. For example, JPMorgan analyst Alex Yao raised his price target for BABA to $205 (more than 20% upside) after BABA reported its fiscal Q1 results.
He says Alibaba’s “solid” financial performance is due to its impressive “strategic planning and execution capability.” In fact, Yao calls Alibaba one of the “best quality growth names” in his firm’s coverage universe with an attractive valuation. Indeed, Alibaba has several growth drivers up its sleeve, including its cloud unit (Alibaba Cloud), which has just passed the 1 million paying customers mark.
Now talk is of a showdown between Alibaba and its U.S. counterpart Amazon.com, Inc. (NASDAQ:AMZN). BABA can compete with Amazon on the cloud and retail front. And the crux is that as both companies expand their international reach, competition will increase for limited global warehouse space.
China Stocks To Buy: Baidu (BIDU)
Shares in Baidu Inc (ADR) (NASDAQ:BIDU), the ‘Google of China’, have exploded from $190 to $220 in the last three months.
Baidu is the No. 1 search engine in China and it is benefiting from China’s online advertising market surge. In the last month alone, two analysts have upgraded the stock from Hold to Buy.
Meanwhile, BIDU is busy reaffirming its tech focus with the launch of a $1 billion tech fund alongside China Life. The sale of its Xiaodu food delivery subsidiary to Rajax for $800 million will also help streamline Baidu’s business.
Five-star Oppenheimer analyst Jason Helfstein recently reiterated his BIDU buy rating and ramped up his price target from just $200 to $250. The new price target translates into a sweet 11% upside from the current share price. Helfstein says:
“We think key drivers include increasing number of paid clicks, higher conversion rates, and higher cost-per-click (CPC). The penetration of smartphones in China, especially in lower tier cities, provides another strong revenue stream for BIDU as it starts to monetize mobile search separately.”
He is also excited by BIDU’s extensive research and development into the hottest industries right now: driverless cars and artificial intelligence.
Indeed, the ‘Strong Buy’ stock has just launched DuerOS. This is its first AI assistant that can follow you from device to device. Its Apollo driverless platform, which has more than 50 partners, including Ford Motor Company (NYSE:F) and Daimler AG (ADR) (OTCMKTS:DDAIY), will “rely on big data and deep learning technology, to let the car know you better.” Frightening … but potentially effective.
China Stocks to Buy: JD.com (JD)
One of China’s largest retailers, JD.Com Inc(ADR) (NASDAQ:JD) is seeing a rapid growth in sales from the country’s exploding middle class.
The Beijing-based company has seen revenue explode 44% year-to-date. So it is not surprising that MKM Partners analyst and managing director, Rob Sanderson, has now reassessed his JD rating.
On Aug. 23, he upgraded the stock to Buy and boosted the price target big-time from $33 to $51. The new target translates into a substantial 25% upside from the current share price.
Sanderson says the company’s valuation is attractive with shares currently down from $48 to $40. Crucially, Sanderson now feels that — even in the face of tough competition from larger rival Alibaba — Chinese e-commerce is powerful enough to support “a strong number two.” At the same time, he says the company’s direct sales model is “sustainably differentiated” from BABA’s third-party marketplace offering.
Finally, Sanderson is optimistic on macro trends supporting the company and says JD can increase margins. This will enable JD.com to achieve sustainable profitability. He concludes: “We think that JD’s opportunity to increase margin remains unchanged and would recommend buying the recent weakness.” Overall the stock has a Strong Buy analyst consensus rating. And most importantly, the average analyst price target comes in at a sizable 17% above the current share price.
Which stocks are the top 25 analysts recommending right now? Find out here.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.