U.S. investors have been tentative in investing in Chinese securities of late. That is mainly because of the increased volatility due to country-specific risks and a worldwide economic slowdown. Consequently, many Chinese tech stocks are now trading at a hefty bargain, offering attractive entry points for traders and investors.
Over the past couple of years, fierce government-led regulatory crackdowns have dramatically declined Chinese tech companies. Nevertheless, the Chinese stock market remains a long-standing investment opportunity for traders. Though the stability of Chinese tech companies has been compromised immensely, their long-term growth runways point to a massive upside in the future; moreover, with multiple Chinese stocks taking a beating over the past couple of years, it’s perhaps the best time to add a few of them to their portfolios.
| BABA | Alibaba | $76.34 |
| NTES | NetEase | $70.68 |
| BIDU | Baidu | $102.29 |
Alibaba (BABA)
Alibaba (NYSE:BABA) has been in the crosshairs of the Chinese government over the past couple of years, meaningfully impacting its profits. 2022 appeared to be a fresh start for BABA, with its regulatory woes in the rearview mirror. However, the coronavirus outbreak in major cities across China further intensified problems for BABA and its peers.
Though its core commerce business has slowed down considerably in the past few quarters, its weak performance has been offset by strong growth in its cloud and logistics divisions. Alibaba’s diversified business model is paying dividends in the current economic climate and is likely to be its strength for years to come. For instance, its commerce business posted a 1% decline in sales, which was more than offset by the 10% jump in sales from its cloud segment.
Moreover, the company continues to post double-digit growth in its profit margins, while its free cash flow margins have held up remarkably well. It’s using these profits to invest in new businesses such as local consumer services, international expansion, and others. Also, analysts at Refinitiv state that BABA stock is trading at over a 90% discount to its consensus price target, which makes it a highly attractive bet.
NetEase (NTES)
NetEase (NASDAQ:NTES) is one of the top internet businesses in China, mainly focused on gaming, generating over 70% of its sales. It has recently expanded into related services covering innovative content, communication, and commerce. It’s one of the few Chinese tech stocks that did relatively well in the stock market last year, arguably the worst year for the sector.
Furthermore, its business has proven resilient in the face of the current market headwinds. Its second-quarter sales shot up 12.8% from the prior-year period to $3.5 billion, an encouraging sign for its gaming unit given the economic slowdown. Moreover, the release of its highly anticipated Diablo Immortal mobile game should boost its top and bottom-line results in the upcoming quarters. It also released a healthcare-education game that could also gain strong traction. Overall it’s a rock-solid business that continues to generate double-digit growth across both lines while trading at multi-year lows. Thus, it is one of the top Chinese tech stocks to buy.
Baidu (BIDU)
Baidu (NASDAQ:BIDU) is often referred to as the Google of China. It operates the largest search engine in the country with a market share of over 65% and is the fourth-largest cloud platform.
Over the years, it’s been a remarkably consistent performer generating strong earnings and sales over the past several years. Recent results have been lackluster, to say the least, though. However, similar to BABA, BIDU’s robust cloud business helped offset the lack of growth in its core business. The company will benefit from the expansion of the cloud sector over the long term, along with a cyclical rebound in advertising spending.
Furthermore, the company recently sold off its stake in its struggling streaming business in iQiyi, which should help boost bottom-line results significantly. Also, its self-driving taxi business already lives in multiple cities in China, progressing much faster than Google’s Waymo project. Therefore, it is one of the top Chinese tech stocks to buy right now.
On the date of publication, Muslim Farooque 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.
