In the wake of China’s crackdown on a number of prominent Chinese companies, the Street has been very cautious about most China stocks in recent months.
I’ve previously argued that the repressive measures by Beijing were due to the government’s fear of the influence of large companies on the country’s citizens. As a result. I expected the Chinese Communist Party to primarily focus on weakening major companies that have the ability to affect the minds of many tens of millions of consumers.
And indeed, the brunt of the crackdown has been borne by consumer-oriented companies with huge customer bases and significant amount of cash. Consequently, the large declines of the Chinese stocks whose issuers shares these characteristics has definitely been justified.
In other words, names like Alibaba (NYSE:BABA), New Oriental Education (NYSE:EDU), Didi (NYSE:DIDI), Tencent (OTCMKTS:TCEHY) and JD.com (NASDAQ:JD) have all deserved the meaningful hits that they’ve taken.
But other Chinese stocks have unjustly plummeted as many large investors, eager to avoid equities viewed as overly risky, have fled to stocks that are widely seen as much less threatening.
Here are 3 Chinese growth stocks to buy on the dip:
Some of today’s unloved Chinese stocks will, because of their continuing strong growth and lack of real exposure to Beijing’s wrath , be embraced by Wall Street once again. These three names make for smart picks.
Chinese Growth Stocks to Buy on the Dip: JinkoSolar (JKS)
One of the world’s leading solar energy companies, JinkoSolar is highly unlikely to be targeted by Beijing for two reasons.
First, the company primarily sell its products to utilities, solar developers, large companies and solar-energy retailers, not directly to consumers. Second, the Chinese government is clearly a big fan of the country’s solar sector, as it’s given solar firms many huge incentives and benefits.
China’s JinkoSolar recently signed a major cooperation deal with CATL, a large firm that is also based in the Asian country. According to Reuters, CATL is “China’s top car battery maker with a market value of almost $200 billion.”
CATL and JinkoSolar plan to establish “comprehensive and in-depth cooperation in the field of solar-plus-storage integration.”
As the creator of the world’s most efficient solar panel, JinkoSolar is obviously a very innovative company. For its part, CATL has “5,000 researchers” and recently launched a groundbreaking sodium-ion battery for electric vehicles, according to Reuters.
In light of the two companies’ trailblazing capabilities, along with CATL’s large research team, I would be surprised if they don’t develop extremely strong solar-plus-storage products. What’s more, CATL can enable JinkoSolar to sell its solar products to China’s leading automakers, and the battery maker could potentially decide to buy JinkoSolar at some point.
And as I’ve mentioned in the past, I expect JinkoSolar to benefit tremendously from the global embrace of solar power.
In spite of these strong, positive catalysts, JKS stock has sunk over 20% this year. Trading at a tiny forward price-earnings ratio of 9.2, according to Yahoo! Finance, shares are definitely a strong buy for longer-term investors.
Since this company sells upper-end electric vehicles that the vast majority of China’s consumers can’t afford, Xpeng is unlikely to be affected materially by any of the Chinese government’s anti-corporate initiatives. And as with the solar energy sector, Beijing has given EV makers a great deal of aid, indicating that the nation’s leaders are quite upbeat on the space.
Xpeng continues to grow very rapidly, suggesting that its EVs have significant traction in China. Last month, for example, its deliveries soared 172% YOY. Further, its deliveries have jumped over 330% in the first eight months of the year versus the same period a year earlier.
As I’ve noted in past columns, Xpeng has implemented extremely advanced self-driving technology and is looking to expand to Europe. Since mid-June XPEV stock has tumbled about 20%.
Since the top customers of BYD, a battery and EV maker, are automakers, municipalities and ridesharing companies, it shouldn’t be caught up in Beijing’s repressive initiatives at all.
The company’s EV sales more than quadrupled YOY last month, reaching an impressive total of more than 51,400. According to CNBC, “Despite the issues affecting the auto industry, demand for electric vehicles continues to climb in China, as the government pushes development of the sector.”
The rapid growth of EVs, both in China and overseas, should also greatly boost the sales of BYD’s EV batteries.
As of March, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A,BRK.B) owned a large 8.2% stake in BYD.
Despite BYD’s strong performance and outlook, its shares have declined about 10% since peaking in the beginning of August.
On the date of publication, Larry Ramer held a long position in JKS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.