[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 in late February and March. But, in 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 is near-zero, and daily life 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:
Cheap Chinese Stocks to Buy When Coronavirus Fears Fade: Alibaba (BABA)
Percentage Off 52-Week Highs: -11.5%
Forward Price-Earnings Multiple: 23.7
The 12% drop 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 consumers didn’t want to go out). So, Alibaba likely weathered the storm while China was on lock-down. Further, China ended its lock-down in March, and retail sales bounced back some. This rebound will persist in April and throughout the rest of the year.
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 24-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 resilience during the coronavirus storm. Any weakness in shares today, will translate into strength tomorrow.
Percentage Off 52-Week Highs: -14.5%
Forward Price-Earnings Multiple: 13.3
One Chinese stock which has been relatively insulated from the coronavirus pandemic is online discount retailer Vipshop.
When you can’t go outside, you shop online. When you’re worried about the economy, you shop at discount retailers. So, while consumers spent way less on discretionary items in the first quarter, whenever they did spend money on discretionary items, they did so at Vipshop.
Total retail sales in China dropped by more than 20% in the first two months of 2020. Vipshop management said in early March, however, that its Q1 sales would be down less than 20%. This relative fundamental out-performance has led to relative stock price out-performance. As of this writing, VIPS stock is less than 5% from 52 week highs.
This strength in VIPS stock will continue. As the economy normalizes in the second and third quarters, consumer discretionary spending will rebound, and VipShop’s revenue growth rates will turn positive again.
As they do, recent strength in VIPS stock will persist, and shares will keep climbing.
Percentage Off 52-Week Highs: -5.3%
Forward Price-Earnings Multiple: 39.8
Much like Alibaba stock, JD.Com stock has been hit on concerns that widespread coronavirus fear killed 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. Just look at March retail sales data from China. From February, retail sales rose by about 0.2%.
This recovery will continue. As it does, JD.Com’s growth trajectory will ramp back up. Revenues will run higher. Margins will expand. Profits will meaningfully scale.
All in all, 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: -42.8%
Forward Price-Earnings Multiple: N/A
One 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 ones.
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: -7.9%
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 60%.
Why the huge rally? Because amid the outbreak, Chinese consumers have been cooped up in their homes. 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 BABA, JD, and NIO.