[Editor’s note: “5 Chinese Stocks to Buy When Coronavirus Fears Fade” is regularly updated to include the most relevant information available.]
Coronavirus fears roiled global markets throughout late February and March. But, in early April, a sign of hope has emerged from an unlikely place: China.
While the rest of the world is fighting the coronavirus pandemic with all of its resources, China has largely put the outbreak behind it. After roughly two months of quarantining, the number of new local cases in China are near-zero, and daily life in China is getting back to normal.
This is important for two reasons. One, it shows that COVID-19 is “beatable”, and that strict quarantining can beat the virus in a relatively short time. Two, it gives investors the “green light” to buy Chinese stocks as the world’s second largest economy normalizes and rebounds in the second quarter.
With that in mind, here’s a list of the best cheap Chinese stocks to buy as coronavirus fears fade and China’s economy rebounds in the second quarter:
- Alibaba (NYSE:BABA)
- Luckin Coffee (NYSE:LK)
- JD.Com (NASDAQ:JD)
- NIO (NYSE:NIO)
- Bilibili (NASDAQ:BILI)
Cheap Chinese Stocks to Buy When Coronavirus Fears Fade: Alibaba (BABA)
Percentage Off 52-Week Highs: -18.7%
Forward Price-Earnings Multiple: 27.0
The 17% plunge in shares of Chinese tech giant Alibaba is nothing more than a great buying opportunity for a few reasons.
First, the company’s e-commerce business was only marginally and temporarily impacted by coronavirus. Consumers pulled back on consumer discretionary spend in January and February. But, whatever dollars they did spend, were spent online through platforms like Alibaba (because they didn’t want to go out), so Alibaba likely weathered the storm while China was on lock-down. Further, China is no longer on lock-down, and consumer discretionary spend like rebounded in March.
Second, the company’s cloud business actually won in the first quarter, because the coronavirus accelerated demand for cloud computing services as companies and organizations rushed to pivot their workloads and processes into an online environment.
Third, Alibaba stock — at just 27-times forward earnings for what is an explosive growth narrative — remains one of the most attractively valued growth stocks on the market.
Net net, Alibaba stock is a long-term winner that showed impressive resiliency during the coronavirus storm. Any weakness in shares today, will translate into strength tomorrow.
Luckin Coffee (LK)
Percentage Off 52-Week Highs: -89.1%
Forward Price-Earnings Multiple: N/A
The Chinese stock which has been hurt the most by the coronavirus outbreak is Luckin Coffee, with shares down almost 90% in the wake of the outbreak.
And this is about more than just the coronavirus pandemic killing the Chinese economy in the first quarter. Instead, most of the drop in LK stock has come on the heels of news that the company’s COO fabricated transactions, which resulted in the company overstating 2019 revenues by about 70%.
That’s awful news. But, it’s not a fatal blow, and LK stock could bounce back for three big reasons.
First, this appears to be a case of “one bad apple”. That is, the COO and his reporting employees seem to have acted alone in this fabrication, and the Board seems very serious about reprimanding and removing these individuals, and restoring order to the C-Suite.
Second, despite the fabrication, Luckin is still growing very quickly. Excluding the fabricated transactions, revenues still grew more than 200% year-over-year in 2019, powered by 100%-plus unit growth. Big unit growth will persist for the foreseeable future. So will big revenue growth.
Third, given where the stock trades today with a $1.3 billion market cap versus its long-term potential (Starbucks (NASDAQ:SBUX) has a $70 billion market cap), the potential upside in the long run is huge.
Big picture, then, Luckin should be able to move past this fabricated transactions fiasco, and continue on a hyper-growth trajectory in the back-half of 2020 and over the next several years.
Percentage Off 52-Week Highs: -10.4%
Forward Price-Earnings Multiple: 35.2
Much like Alibaba stock, JD.Com stock has been hit hard on concerns that widespread coronavirus fear killed consumer discretionary spend in the first quarter of 2020.
It did. No question about it. If I’m worried about getting sick and dying, I’m not going to buy a new t-shirt. It’s that simple.
But, what’s also surprisingly simple, is that once I’m done worried about getting sick and dying, I will buy a new t-shirt.
Because of this, JD.Com’s growth trajectory will ramp back up in the second quarter of 2020, as Chinese consumers return to their normal ways. This is especially true considering that the People’s Bank of China has poured an enormous amount of stimulus into the economy, which should keep borrowing costs low and spending conditions favorable.
Plus, JD.Com was on fire before the coronavirus outbreak. Revenues were running higher. Margins were expanding. Profits were finally starting to meaningfully scale.
The company will get back to firing on all cylinders again in the second quarter. As it does, the stock will roar to new highs.
Percentage Off 52-Week Highs: -54.1%
Forward Price-Earnings Multiple: N/A
Next to Luckin Coffee, another Chinese stock which has been hit hard by coronavirus concerns is Nio. And that makes a ton of sense.
After all, Nio sells premium electric vehicles. Chinese consumers didn’t buy many cars in the first quarter of 2020, let alone many premium electric cars.
But, before the outbreak, Chinese consumers were buying a bunch of cars, and they were especially buying a bunch of premium electric vehicles. Nio’s delivery trends were on a huge upswing in the back-half of 2019.
That big upswing will resume in the second quarter of 2020 for a few reasons. First, there’s tons of stimulus to support big-ticket purchases like a premium electric car. Second, China phased out EV subsidy cuts this year. Third, Nio is launching a new vehicle, the EC6, later this year — and the last new vehicle launch, the ES6, was a huge success.
Meanwhile, Nio has secured sufficient financing from Hefei’s city government to absorb any and all cash burn during the first quarter without risking insolvency.
Big picture: the slowdown in Nio’s growth ramp is temporary, and the company has enough resources to weather this temporary downturn. Nio will resume its growth ramp in the second quarter. When it does, the stock will rebound in a big way.
Percentage Off 52-Week Highs: -15.9%
Forward Price-Earnings Multiple: N/A
Shares of Chinese social video platform Bilibili — often dubbed the YouTube of China — have actually surged amid the coronavirus outbreak.
Year-to-date, BILI stock is up almost 20%.
Why the huge rally? Because amid the outbreak, Chinese consumers have been cooped up at home. While at home, those consumers have been bored out of their minds, turning to at-home entertainment options like Bilibili to entertain themselves. Presumably, then, Bilibili usage and engagement has actually gone up over the past few weeks.
As goes engagement, so goes Bilibili’s platform, since it’s built on the back of subscription dollars and ad revenue.
It is quite likely that, as China’s economy rebounds in the coming months, Bilibili’s already good growth trends, will only get better. As they do, this red hot stock, will only get hotter.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long LK, BABA, JD, and NIO.