Over the last few years I’ve been telling you to buy Alibaba Group Holding (NASDAQ:BABA) if you want visibility into the China market. In 2020 you can do better. Alibaba shares are still down slightly for 2020, but rival JD.com (NASDAQ:JD) is up by nearly one-third.
JD stock was due to open for trade May 12 at $47/share, after starting 2020 near $36. This is close to its all-time high, over $50 per share.
JD is due to deliver its first-quarter report on May 15. The consensus is for earnings of 11 cents per share on sales of $19.17 billion. But there’s a “whisper number” that’s higher, at 18 cents. Right now the most recent numbers are in its 2019 annual report, issued April 15. (As with Alibaba, you’re buying depository receipts, not shares, from a store in the Cayman Islands.)
There are reasons for JD’s recent rise, but there are different reasons for you to consider an investment in JD stock today.
Why the Boomlet?
One reason for JD’s recent rise is the 2018 scandal involving founder Richard Liu, accused of rape by a University of Minnesota co-ed when Liu was finishing a doctorate in business. After an investigation, no charges were brought, but it was still a public relations disaster, especially in the U.S.
Shares are still lower than they were when that scandal broke, although it had little financial impact. Liu has edged away from the spotlight but retains financial control with 79% of voting shares. Liu’s slow fade-out has helped the stock.
Second is its decision, taken earlier this year, to seek a $3 billion secondary listing in Hong Kong. This lets JD take cash from Chinese investors more readily, and as with Alibaba earlier, has encouraged Western buying, too.
Why Buy JD Stock?
There are better reasons to buy the stock, even beyond a $2 billion stock buyback announced in March.
As with many companies I like, the reason is cloud computing. JD has a great reputation for logistics, delivering seafood within hours and serving remote villages with drones. The plan now is to expand in technology logistics, with western help.
The company is also trying to leapfrog Alibaba by delivering Artificial Intelligence (AI) with the first edition of its cloud. JD is also working closely with Tencent Holdings (OTCMKTS:TCEHY), owner of WeChat and Alibaba’s chief rival in China’s cloud market. One more potential partner is Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), which invested $550 million in JD.com two years ago.
The new face of JD is 45-year old Xu Lei, who runs the retail operation. He gets credit for JD’s dog mascot and “6:18,” a multi-week gift event focused on electronics, tied to JD’s founding. Xu’s focus on cloud niches, like augmented reality, and his willingness to partner make strategic sense.
The Bottom Line on JD Stock
If you have a short-term perspective and are focused on capital gains, there’s an even better Chinese stock for you.
That’s Pinduoduo (NASDAQ:PDD), whose group-buying function (similar to Groupon (NASDAQ:GRPN) appeals to bargain hunters. Those shares are up 44% so far in 2020, and 117% over the last two years, well beyond JD’s gains.
JD.com is a more conservative, substantial choice. It’s much bigger, and its delivery infrastructure is world class. JD also has operations outside China, including the U.S., and its ambitions are global.
After a bad start, which let the virus escape, China has done a better job dealing with the pandemic than the U.S. This has let its companies recover faster and come back stronger. If you’re looking to capitalize on that, JD is the name to know.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA.