- Alibaba (BABA) — Dominant position in e-commerce and cloud-computing.
- JD.com (JD) — No. 2 in Chinese e-commerce, but holding up better than Alibaba stock.
- Baidu (BIDU) — Stock performance has been terrible, but fundamentals are quite impressive.
We have a pretty muddy picture in Chinese stocks at the moment. The group had multiple headwinds before U.S. stock markets faced multiple headwinds.
Aside from the issues that investors currently face — including increasing interest rates and geopolitical issues — Chinese stocks have unique risks.
First, they face risks from the Chinese government. In the fall of 2020, Alibaba (NYSE:BABA) was gearing up for the Ant Inc. IPO as it had a sizable stake in the firm. However, that IPO was nixed just days ahead of its expected debut in China. Alibaba then began butting heads with the government, the latter of which continued to make life more and more difficult for what was the country’s largest company.
Second, Chinese stocks face regulatory issues in the US. We can never rule out China’s government from making overreaching decisions. Unlike in the U.S., “fair” is not necessarily in the Chinese government’s priorities. There are also questions within the U.S. as to whether these businesses should be listed on its exchanges.
All of these risks exist with Chinese stocks and investors who want to be long this group must embrace these risks if they want to be involved in these names.
Chinese Stocks to Buy: Alibaba (BABA)
Alibaba is one of the go-to Chinese stocks for investors. Unfortunately, it has been a total dog.
From its high to the recent low, Alibaba was down 77%. Even after a recent bounce, shares remain 64% below the 52-week highs.
If you’ve been burned by Alibaba stock, don’t feel bad. Even the great Charlie Munger of Berkshire Hathaway (NYSE:BRK.B, NYSE:BRK.A) whiffed on this. He recently exited 50% of his Alibaba stake. While the value seemed clear, the market had other ideas.
But let’s not forget its assets.
Alibaba has a dominating grip on e-commerce market. Aside from Alibaba.com, there’s Taobao and Tmall — two of the most popular websites in the world. The company also has an incredible cloud business, among other enterprises.
Despite the poor sentiment around the stock, analysts expect about 20% revenue growth this year and 12.5% growth next year.
Unfortunately, earnings estimates call for a 20% dip this year but shares trade at just 12.5 times earnings. The valuation is taking into account this year’s slowdown.
Many consider JD.com (NASDAQ:JD) as the “little brother” to Alibaba. That should be the case, given its smaller footprint and less dominant position in e-commerce.
However, the stock has been holding up better than Alibaba. JD.com shares are down 42% from the 52-week high. Obviously that’s not great, but it’s significantly better than Alibaba’s performance.
Further, analysts are more optimistic on JD.com than they are on Alibaba. In fact, so much so that investors really ought to pay attention.
Analysts expect about 19% revenue growth this year and next year. That goes alongside estimates calling for 14% earnings growth in 2022 and more than 50% growth in 2023.
With all that in mind and knowing the risks with Chinese stocks, JD.com is one to watch.
Chinese Stocks to Buy: Baidu (BIDU)
Many refer to Baidu (NASDAQ:BIDU) as the “Google of China” because it’s the country’s leading search giant.
Baidu is one to watch as its stock has been depressed but its fundamentals remain okay. Baidu is the world’s fourth-most popular website in the world.
On the growth front, there’s good news and bad news. Starting with the latter, analysts expect earnings to fall about 5% this year.
As for the good news, estimates call for 8% revenue growth in 2022 and for an acceleration in growth in 2023 to 13.5% growth. Longer term estimates are even more impressive.
Earnings are forecast to jump almost 27% in 2023 as well. More good news? The stock trades at just 16 times this year’s earnings and 10 times next year’s estimates.
If things go well (and analysts are fairly optimistic over time), Baidu could generate some strong returns.
On the date of publication, Bret Kenwell 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.