3 Underperforming U.S. Stocks With Big China Upside


  • Don’t count out the U.S. companies with considerable Chinese market exposure quite yet. A rebound may not be so far off.
  • Starbucks (SBUX): China is a huge market for the Seattle-based coffee chain that may not stay chilled for very long.
  • Apple (AAPL): Smartphone rivals may be gaining on iPhone, but will they return to Apple once the economy has a chance to really heat up?
  • LVMH (LVMUY): Luxury goods demand in China may have been weak of late. But pent-up demand may be building as consumers wait for more prosperous days.
underperforming U.S. stocks - 3 Underperforming U.S. Stocks With Big China Upside

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The Chinese economy has been in a bit of a rough patch for quite some time now, with numerous Chinese tech titans still stuck in their massive multi-year ruts. Even the U.S. companies that do a significant amount of business in China have been feeling the harsh economic realities. Add the potential for geopolitical risks into the equation, and it can feel tempting to steer clear of the companies that may depend too much on the region to fuel their long-term revenue growth.

That said, there is hope, with China starting the year with 5.3% growth in the first quarter. For those willing to bet on a Chinese economic rebound, I view the U.S. companies with exposure to the region as great plays.

Longer-term investors seeking low-cost growth may find ample value in buying some Chinese-exposed U.S. firms while they’re down and out. Here are three underperforming U.S. stocks that could benefit greatly once China’s economy finally has a chance to bounce back.

Starbucks (SBUX)

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Chinese consumers seem to have a newfound thirst for coffee. Indeed, tea has nothing on coffee when it comes to getting a nice caffeinated jolt to start one’s day. China has seen robust growth in cafés in recent years, with the nation now boasting more branded coffee shops than America, a fact I found quite surprising.

Starbucks (NASDAQ:SBUX) is the branded coffee kingpin that’s done a good job of expanding into China in recent years. However, the Chinese coffee boom has also paved the way for national competitors. In any case, growth out of China could be key to boosting SBUX stock to new highs over the next few years.

In the meantime, Starbucks has no shortage of problems, as budget-constrained consumers pull back on fancy Frappuccinos for homemade brews. As inflation dies down and Starbucks continues opening new shops across China, I view shares as having a pathway out of the gutter under its new top boss Laxman Narasimhan.

Apple (AAPL)

Apple store. Apple Inc. (AAPL) sells consumer electronics, computer software, services and personal computers.
Source: Vytautas Kielaitis / Shutterstock.com

Apple (NASDAQ:AAPL) is another company that could rocket higher once the Chinese economy kicks into high gear. With China’s economy off to a decent start to the year, the world’s second-largest economy may very well be in a spot to make up for lost time in the quarters ahead. That could spell great things for Apple as it looks to gain ground in the region again.

With Chinese smartphone rivals, like Xiaomi (OTCMKTS:XIACY) and Huawei, beginning to pick up speed, many wonder if Apple still has what it takes to capitalize on next-level growth out of China. Earlier this year, Apple reportedly offered a rare discount on its latest iPhone to bolster sales growth in China. However, only time will tell how the iPhone will stack up against domestic competitors over the year ahead.

I think it’s a mistake to discount Apple’s ability to return to glory once the Chinese economy is back up to full speed. At the end of the day, the iPhone is a premium device, one that could experience more explosive demand when Chinese consumers have more disposable income.

Even if growth in China stalls for longer, Apple still stands to do well as it begins to share more about its long-term AI strategy with the world. With intriguing AI products (AI PCs and phones rumored to be on the way) and software updates in the pipeline, AAPL has plenty of growth drivers to jolt its stock.


The logo for the luxury goods holding company LVMH is seen through a magnifying glass on the company's website.
Source: Postmodern Studio / Shutterstock.com

Finally, we have luxury goods maker LVMH (OTCMKTS:LVMUY), which found itself plunging around 11% off its year-to-date highs. With sales growth coming in soft as a result of lower demand for luxury goods in China, the stock seems destined for lower lows as its most exciting growth market feels a bit of a pinch.

I view the slip in LMVH stock as a terrific buying opportunity for investors seeking to ride the next Chinese economic recovery. Undoubtedly, luxury demand is bound to swing wildly based on the health of the economy. But when the tides finally do turn, they could do so drastically. For now, it’s unclear as to when luxury demand will start making a move to peak levels. Regardless, LVMH will be there to meet pent-up demand when the time comes.

At 26.6 times trailing P/E, the stock looks way too cheap, given after the latest round of turbulent action. Undoubtedly, China is becoming an increasingly important growth market for LVMH as it looks to capitalize on the nation’s rising middle class. Even as demand sags, I have no doubt that LVMH will continue increasing its Asian store count at a steady pace over the next few years.

On the date of publication, Joey Frenette owned shares of Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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