China is stimulating its economy and the country’s government seems to be largely done with terrorizing some of its leading tech companies. Meanwhile, after most Chinese stocks tumbled tremendously in recent months, including all of the names highlighted in this article, the valuation of many of the nation’s equities is quite attractive.
Investors also should not forget that the country has a vibrant, rapidly growing middle class and is poised, within several years, to become the world’s largest economy. Meanwhile, Chinese companies have become dominant in solar modules and are major players in electric vehicles (EVs), even as both technologies grow explosively around the world.
Also importantly, President Joe Biden’s administration is much more friendly to Beijing and its companies than the former President Trump’s administration was.
Given all of these points, many Chinese stocks are quite attractive right now. However, in light of the heavy-handedness of the country’s government and some of its lingering geopolitical issues, Chinese equities are only well-suited for risk-tolerant investors.
After all, it wouldn’t be that surprising to see the country go to war over Taiwan within the next few years, and many other nations are justifiably upset with actions taken by Beijing and could find ways to retaliate against it. Also, Chinese companies are not known for their high accounting standards.
Still, for long-term, risk tolerant investors, the following Chinese stocks are very attractive at this point:
- JinkoSolar (NYSE:JKS)
- Baidu (NASDAQ:BIDU)
- Li Auto (NASDAQ:LI)
- Xpeng (NYSE:XPEV)
- BYD Company (OTCMKTS:BYDDF)
- Noah Holdings (NYSE:NOAH)
- Luckin Coffee (OTCMKTS:LKNCY)
Chinese Stocks: JinkoSolar (JKS)
One of the leading makers of solar modules, JinkoSolar manufactures bifacial solar cells and is a major exporter of modules to the U.S. As a result, the company should benefit a great deal from President Joe Biden’s recent decision to exempt bifacial modules from America’s solar tariffs going forward.
As I noted in a column published late last month, “the shares of Jiangxi Jinko, JinkoSolar’s principal operating subsidiary, started trading in Shanghai. […] with a market capitalization of about $16 billion, making Jinko’s stake in the subsidiary worth approximately $9.3 billion.”
Yet, the market capitalization of JKS stock in New York is currently just above $2 billion. And the forward price-to-earnings (P/E) ratio of the shares is a tiny 9, according to Yahoo Finance.
Moreover, the Chinese government is very devoted to the solar sector, so it is highly unlikely to take any adverse actions against JinkoSolar. And, as I pointed out previously, solar energy is rapidly proliferating around the world.
Also worth noting is that the prices of polysilicon, an important raw material for solar modules, have been dropping recently after climbing a great deal in 2021.
Baidu is a well-positioned company because it is becoming a business-to-business (B2B) player. It is “offering [artificial intelligence (AI)] as a service, enterprise cloud, and autonomous driving,” as Ariel Investments’ Rupal Bhansali recently told Barron’s. The B2B market is lucrative, less competitive than the Chinese B2C internet sector, and less likely to draw the ire of Beijing’s regulatory authorities.
Bhansali added that Baidu’s market share in Chinese internet search is 70%, while the company is well-aligned with Beijing’s economic agenda. Those are both very positive attributes.
In an October 2021 column, InvestorPlace contributor Muslim Farooque reported that “the revenue of Baidu’s online marketing services business shot up 18% in Q2 versus the second quarter of 2019. China’s advertising market has been booming, and Baidu has successfully taken advantage of the growth.”
Baidu is extremely profitable. Over the 12 months that ended in September, its operating income was 17.4 billion Chinese yuan or $2.75 billion.
Despite all of these positive characteristics, the P/E ratio of BIDU stock is just 16.48, according to Marketwatch.
Chinese Stocks: Li Auto (LI)
Additionally, as Simply Wall St’s Kshitija Bhandaru pointed out on Nasdaq.com in November 2020, “the Auto industry plays a critical role in some of the world’s largest economies, including China, which has been the world’s largest auto manufacturer since 2009.”
Li is one of three up-and-coming Chinese EV stocks that I recommend buying. The company’s growth has been blistering and its EVs have clearly caught on in a big way in China. For example, in January, its deliveries soared 128% year-over-year, reaching 12,268.
Yanan Shen, the co-founder and president of Li Auto, stated “we have delivered over 10,000 Li ONEs for the third consecutive month, achieving a new record for domestic branded premium vehicles priced above [$47,400] in China.”
According to Barron’s, as of Jan. 12, “about 91% of analysts rate shares the equivalent of Buy.”
Analysts, on average, expect Li’s revenue to jump to $6.9 billion this year, up from $4.04 billion in 2021. The mean estimate calls for its earnings per share to come in at -3 cents this year, versus -27 cents in 2021. So, clearly the automaker’s results are expected to trend in the right direction.
According to Marketwatch, the enterprise value to sales ratio of LI stock is a reasonable 10.7.
Xpeng, another Chinese automaker, is also doing well. The company’s deliveries in January jumped 115% year-over-year (YOY), reaching 12,922 EVs. According to Seeking Alpha, the news shows Xpeng’s “solid business momentum and execution capability.” In all of 2021, the automaker’s sales tripled. That, of course, is extremely impressive growth.
As I noted in a previous column, Xpeng has already entered Europe and is looking to greatly expand its presence there. In September, the EV maker launched the first vehicle in the world with lidar sensors and the automaker is generally quite ahead of the curve when it comes to advanced driving assistance systems (ADAS).
Research firm Macquarie recently started coverage of XPEV stock with an “outperform” rating. According to Barron’s, as of Jan. 12, 85% of the analysts who had ratings on the shares had given them “buy” or equivalent ratings. Moreover, the mean price target on the EV maker’s shares in New York was approximately $64 per share, versus its current price of around $40.
Like LI stock, the firm’s enterprise value to sales ratio is 10.7, which is not excessive. Analysts, on average, expect the automaker’s sales to jump to $6.47 billion this year, up from $3.24 billion last year. And the mean 2022 earnings per share (EPS) estimate is -76 cents, versus -90 cents in 2021.
Chinese Stocks: BYD Company (BYDDF)
Another on the list of auto stocks I’m focusing on is BYD Company. The auto and battery maker, in which Warren Buffett has a major stake, has become “the fourth-largest EV manufacturer in the world.” As of the end of December, the company controlled about 18% of the huge Chinese plug-in vehicle market.
Additionally, “BYD sold 93,945 new energy vehicles in December, up 218% vs. a year earlier.” Meanwhile, at the end of last year, the company received multiple, large electric bus orders from Europe. That could pave the way for the company to sell many more EVs in general, including electric trucks, on the continent.
Further, as Seeking Alpha columnist Nick Cox noted in December, referring to BYD, “China is very unlikely to crack down on a Chinese manufacturer exporting a lot of product and investing in factories overseas.”
BYD intends to sell about 1.1 million to 1.2 million EVs and plug-in hybrid vehicles in 2022. That is a very impressive target.
Noah Holdings (NOAH)
Noah Holdings is “one of the oldest private asset managers in China.” Specializing in providing wealth management services to wealthy clients with assets over $1 million, Noah reported that the number of the richest clients “increased at the fastest pace in the first half since the strategic shift began two years ago.”
With Chinese stock exchanges performing better recently and wealthy Chinese citizens likely to be boosted by the country’s economic stimulus, Noah should get big boosts from those trends. Additionally, the company’s bottom-line has been held down in recent quarters by its investments in new talent. Over time, those investments should pay off for the company, boosting its financial results and NOAH stocks. And in the long term, the investments should slow.
In fact, in 2022, analysts, on average, expect the company’s bottom line to rise to $3.85, versus $3.26 in 2021, Yahoo Finance reported.
Additionally, Noah’s enterprise value to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio is a tiny 3.1, as reported by Marketwatch.
Chinese Stocks: Luckin Coffee (LKNCY)
Once left for dead by much of Wall Street after an accounting scandal, Luckin Coffee appears to be on the verge of a huge comeback. It has settled the U.S. Securities and Exchange Commissions’ (SEC’s) fraud charges and Centurium Capital recently revealed that it had become the firm’s largest shareholder.
Encouragingly, Centurium is run by David Li, who was previously an executive at Warburg Pincus, a U.S.-based investment fund. Centurium worked closely with Luckin for many weeks and “John Zolidis, an independent retail analyst at Quo Vadis Capital in New York” says that the company’s results are “clean.”
After hiring a completely new management team, Luckin reported that its third quarter sales jumped over 100% YOY, while its store-level operating margins improved and losses narrowed.
The company’s drinks are much cheaper than those of Starbucks and more focused on the tastes of Chinese consumers.
The company also appears to be on the verge of emerging from bankruptcy. All in all, these are good signs for LKNCY stock.
On the date of publication, Larry Ramer was long JKS stock, XPEV stock, and LKNCY stock.
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.