3 Chinese Stocks to Buy on the Dip Amid China Triple Whammy

  • Baidu (BIDU): Revenue from non-core businesses soared 63% YOY, to compensate for the decline in its advertising business
  • Nio (NIO): Delivered a record 25,034 EVs in the quarter ending March despite the semiconductor shortage
  • Yum China (YUMC): The restaurant chain could be a good bet on the growing consumer appetite in China
A large shopping mall in the central city is festooned with Chinese flags in celebration of the National Day after the victory against the Covid-19 epidemic.
Source: humphery / Shutterstock.com

Stock market volatility in recent months has put pressure on Chinese shares. For instance, the Shenzhen SE Composite is down over 17% year-to-date (YTD) and 7.5% over the past year. Similarly, the Shanghai Composite has declined nearly 11% YTD and 7.1% over the past 12 months.

The current dip in Chinese stocks seems to offer compelling buying opportunities for savvy investors. But there are still several headwinds to consider before hitting the buy button in Chinese shares.

For starters, the country is currently fighting its worst outbreak of Covid-19 cases since the start of the pandemic in Wuhan over two years ago. In recent days, Shanghai came to a halt as it locked down most of its 26 million residents to stop the outbreak.

Meanwhile, China is grappling with the impact of the economic sanctions against Russia. The sharp increase in the price of crude oil implies a significant financial burden on the biggest oil importer worldwide.

In addition, Beijing has recently announced plans for new restrictions on its $30 billion live-streaming and entertainment industry. Investors are worried that the regulatory crackdown that stated over a year ago is not necessarily over yet.

Despite these concerns, analysts concur on the potential of the Chinese economy. For 2022, Citigroup (NYSE:C) has just increased its forecast for the gross domestic product (GDP) growth in China from 4.7% to 5%. The bank claims Beijing is likely to increase fiscal stimulus and boost broad economic growth.

With that information, here are three Chinese stocks to buy on the dip amid this China triple whammy:

BIDU Baidu, Inc. $140.00
NIO NIO Inc. $21.68
YUMC Yum China Holdings, Inc. $42.25

Chinese Stocks to Buy: Baidu (BIDU)

A Baidu (BIDU) sign outside a company office in Shenzhen, China.
Source: StreetVJ / Shutterstock.com

Our first China stock to research is the tech giant Baidu (NASDAQ:BIDU). It operates the largest online search engine and a leading streaming video platform. It is also one of the most important cloud infrastructure platforms in China. The company is diversifying its business beyond advertising to artificial intelligence (AI) and driverless cars.

Baidu released fourth-quarter 2021 results on March 1. Revenue increased 9% year-over-year (YOY) to $5.2 billion. However, adjusted net income declined 41% to $641 million, or $1.82 per diluted share, down from $1.1 billion a year ago. Cash and equivalents ended the period at $29.96 billion.

The company reported a downturn in its core online advertising business due to a decline in consumer spending that resulted in lower ad rates. However, revenue from non-core businesses, including AI, Baidu Cloud and self-driving cars, soared 63% YOY, compensating for the decline in its advertising business.

BIDU stock is down 38% over the past year. Shares are trading at 19.7 times forward earnings and 2.8 times trailing sales. The 12-month median price forecast for Baidu stock stands at $217.34.

On a final note, we should remind readers that in March, the Securities Exchange Commission (SEC) added Baidu to its list of delisting candidates. Therefore, potential investors should do further due diligence on BIDU shares.

Nio (NIO)

NIO ES6 electric SUV semi-autonomous car on display near Chinese automobile manufacturer NIO software development office in Silicon Valley
Source: Michael Vi / Shutterstock.com

A discussion on Chinese stocks would not be complete without mentioning Nio (NYSE:NIO), the electric vehicle (EV) group. It manufactures vehicles featuring technologies such as battery services, AI, and autonomous driving.

Nio announced Q4, 2021 results on March 24. Revenue increased 49% YOY to $1.55 billion. Net loss jumped 46% YOY to $342 million, or 21 cents loss per diluted share. Cash and equivalents ended the year at $8.7 billion.

The automaker delivered a record 25,034 EVs in the quarter ending March. Nio’s plans for 2022 include the launch of three EVs. They include the ET7 luxury sedan that already started shipping last week, as well as the ET5 mid-size sedan and ES7 SUV. In addition, the EV group is looking to expand its initial foothold in Norway and start selling in Germany, the Netherlands, Sweden and Denmark.

Management remarked it could break even in the fourth quarter of 2023. It could potentially generate its first full year of profit in 2024.

NIO stock is down 44% over the past year and 32% YTD. Shares are trading at just 6.2 times trailing sales. Meanwhile, the 12-month median price forecast for Nio stock stands at $34.03.

Chinese Stocks to Buy: Yum China (YUMC)

A banner for Yum China (YUMC) decorates the New York Stock Exchange.
Source: rblfmr / Shutterstock.com

Our final stock is Yum China (NYSE:YUMC), the largest restaurant chain in China. The company operates KFC, Pizza Hut and Taco Bell franchises. It opened a record 1,806 stores in 2021, raising its total to 11,788. In addition, Yum projects opening approximately 1,000-1,200 new stores in 2022.

Management released Q4, 2021 results on Feb. 8. Revenue increased 1% YOY to $2.29 billion. Adjusted net income declined 93% to $11 million, or 3 cents per diluted share, down from $153 million in the prior-year period. Cash and equivalents ended the period at $1.14 billion.

The restaurant chain came under considerable pressure from the shutdowns of major cities due to the omicron variant. Same-store sales decreased 11% YOY. Restaurant margins declined by half to 7.5%. On a better note, delivery has become a key growth engine, increasing 60% in 2021 from pre-pandemic levels in 2019.

YUMC stock is down 29% over the past year. Shares are trading at 25.5 times forward earnings and 1.94 times trailing sales. And the 12-month median price forecast for Yum China stock stands at $59.

Last but not least, on March 11, the SEC added Yum China to its list of delisting candidates. So, investors interested in Chinese stock need to pay close attention to potential steps that may be taken by the SEC.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


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