Chinese stocks have been depressed for an extended period. The reasons include regulatory hurdles for the corporate sector, macroeconomic headwinds and geopolitical factors. However, there is no doubt that some high-quality businesses in China could be invested in. The negative sentiments are, therefore, an excellent opportunity to accumulate undervalued Chinese stocks.
For 2024, it’s estimated that China’s GDP will increase by 4.6%. This growth is likely amidst the challenges faced by the real estate sector. China also faces issues related to overcapacity. It’s, however, worth noting that China is a big economy. Some sectors will grow at a healthy pace, while others will grow at a muted pace. At the same time, economic sectors will go through a recession.
My point is that there will continue to be attractive investment opportunities. With a broad market remaining depressed, it’s an excellent time to accumulate undervalued Chinese stocks. I believe these stocks are poised to surge higher, considering positive business catalysts.
Li Auto (LI)
Li Auto (NASDAQ:LI) is among the most undervalued Chinese stocks to buy. The stock trades at a forward price-earnings ratio of 13.5, and with robust revenue growth, I expect a quick double from current levels.
It’s worth noting that Chinese EV makers like Nio (NYSE:NIO) and XPeng (NYSE:XPEV) have been struggling. However, that’s not the case with Li Auto. The Company continues to report healthy delivery growth coupled with robust vehicle margins.
Li Auto ended 2023 with a strong cash buffer of $14.6 billion. Further, with strong free cash flows, the Company has high financial flexibility to pursue aggressive growth. Li has exclusively focused on expanding its retail network within China. Considering the financial flexibility, I expect Li auAutoo to explore international markets in the next 24 months. That’s another impending growth catalyst.
Further, with the development and launch of new models, delivery growth is likely to remain stellar. The Li L6, a five-seat premium family SUV, was launched recently. The car has received an excellent initial response.
Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) stock is another undervalued Chinese stock to buy for quick returns. MNSO stock trades at a forward price-earnings ratio of 19 and offers a dividend yield of 1.74%. With stellar revenue growth coupled with adjusted EBITDA margin expansion, it’s a matter of time before MNSO stock surges.
For Q2 2024, the lifestyle retailer reported revenue growth of 54% on a year-on-year basis to $541 million. This growth was driven by aggressively opening new stores in China and internationally. Further, Miniso reported an adjusted EBITDA margin of 25.9% for the quarter, which was higher by 200 basis points on a year-on-year basis.
With Miniso targeting to open 900 to 1,100 stores annually between 2024 and 2028, I expect robust growth to sustain. At the same time, the dividend upside will likely remain healthy on the back of higher cash flows. Considering these positives, MNSO stock trades at a valuation gap, and I expect a significant rally relatively soon.
JD.com (JD)
JD.com (NASDAQ:JD) was among the hottest stocks during the euphoric rally of 2021. The stock had surged above $100, backed by positive business developments and industry tailwinds. However, regulatory headwinds coupled with a shift in shopping trends in a post-pandemic world translated into a deep correction for JD stock.
At current levels of $30, JD stock seems undervalued and poised for a significant reversal rally. My view is underscored by the fact that the stock trades at a forward price-earnings ratio of 9.6. Further, JD stock offers a dividend yield of 2.5%.
An important point to note is that between 2018 and 2023, JD.com has delivered revenue growth at a CAGR of 19%. Besides healthy top-line growth, the Company’s profitability makes JD stock attractive.
To put things into perspective, the Company reported operating cash flow of $8.4 billion for 2023. This provides ample flexibility for investment in the Company’s emerging businesses. Further, the core business of JD Retail and JD Logistics has ample scope for growth and penetration within China.
On the date of publication, Faisal Humayun did not hold (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.
