Chinese stocks have plunged over the past year, in part due to Beijing’s regulatory crackdowns and imminent delisting risks for Chinese stocks in the U.S. The iShares MSCI China ETF (NASDAQ:MCHI) has fallen more than 31% year-to-date (YTD). However, bargain valuations and recovering business prospects have many investors considering Chinese stocks to buy on the dip as a potential rebound.
Ongoing declines in the global markets have recently taken a breather thanks to positive news out of China. Beijing is lifting Covid-19 restrictions and easing regulatory crackdowns on its tech sector.
Driven by the reopening of the Chinese economy and an increase in fiscal spending, the Nasdaq Golden Dragon China Index ended June with a 15.6% gain, following its 2.6% return in May. Meanwhile, the KraneShares CSI China Internet ETF (NYSEARCA:KWEB) has appreciated more than 7% over the past three months, whereas the Nasdaq 100 index has declined 15%.
Yet, China’s ties to Russia, Covid-19 uncertainties, and overall political risk all constitute significant roadblocks that may overwhelm a compelling dip-buying opportunity.
With that information, here are the seven best Chinese stocks to buy on the dip in July:
|BABA||Alibaba Group Holding Limited||$101.06|
|LI||Li Auto Inc.||$34.60|
|TCEHY||Tencent Holdings Limited||$41.58|
|TCOM||Trip.com Group Limited||$26.83|
Chinese Stocks to Buy: Alibaba (BABA)
- 52-week range: $73.28 – $216.60
Alibaba (NYSE:BABA) is China’s largest e-commerce player, with 1 billion active customers shopping at its e-commerce marketplaces, Taobao and Tmall. In recent years, Alibaba has also become the top cloud service provider in China.
The e-commerce giant posted fourth quarter (Q4) and full-year results on May 26. Revenue grew 9% year-over-year (YOY) to $32.2 billion, marking its slowest growth as a public company. Diluted earnings per share came in at 16 cents, a decline of 23% YOY. Free cash flow was an outflow of $2.38 billion. Cash and equivalents ended the period at $70.4 billion.
Commerce revenue generated in China increased just 8% YOY to $22.14 billion in Q4, representing 69% of total revenue. Meanwhile, Alibaba’s cloud revenue soared 12% YOY to $2.99 billion. However, cloud growth is forecasted to decelerate over the next 12 months.
BABA stock has declined 9% YTD. Shares look undervalued at just 13.8 times forward earnings and 2.6 times sales. Meanwhile, analysts’ 12-month median price forecast stands at $150.02.
- 52-week range: $101.62 – $187.48
Baidu (NASDAQ:BIDU) is a tech giant that operates the largest online search engine in China. It “dominates the search engine market in China, in terms of all platforms (84.3%), desktop (57.9%) and mobile (94.51%).”
The company also has a leading streaming video platform and China’s fourth-largest cloud infrastructure platform. Furthermore, it is gaining a foothold in the autonomous driving space.
The search giant announced Q1 financials on May 26. Revenue increased 1% YOY to $4.48 billion. However, adjusted diluted earnings per share came in at $1.77, down from $1.85 a year ago. Baidu boasts roughly $29 billion in cash, cash equivalents, and short-term investments against just $12.5 billion in debt.
Advertising revenue declined 4% YOY in Q1 due to the lockdowns and the economic downturn in China. Yet, Baidu’s monthly active users increased 13% to 632 million, suggesting rising adoption despite declining advertiser budgets. Meanwhile, non-ad revenues increased by 35% YOY, driven by Baidu AI Cloud, which grew 45% YOY in the quarter.
So far in 2022, BIDU stock has lost almost 4%. Shares are trading at 21.5 times forward earnings and 2.9 times sales. Wall Street’s 12-month median price forecast is at $197.90.
Chinese Stocks to Buy: Bilibili (BILI)
- 52-week range: $14.93 – $116.18
Bilibili (NASDAQ:BILI) is a video-sharing website themed around animation, comics, and games. Its website offers a range of content, including video services, mobile games, comics, and audio content. Metrics suggest that in the arts and entertainment category, it has the number one ranking in China.
The Chinese platform announced Q1 metrics on Jun. 9. Revenue grew 30% YOY to $797 million. Adjusted net loss was 66 cents per diluted share, compared with 37 cents a year ago. Cash and equivalents ended the period at $3.9 billion.
The company benefited from rising user engagement as China went through lockdowns. Average monthly active users grew 31% YOY to 293.6 million. Moreover, daily time spent per user soared to a record high of 95 minutes.
However, top-line growth fell short of management’s guidance due to declining revenue in its advertising and e-commerce segments. Management anticipates sluggish revenue growth for the second quarter, stemming from a potential decline in user engagement after the lockdowns in China.
So far in 2022, BILI stock has tumbled around 46%. Shares are trading at 3.4 times sales. Meanwhile, analysts’ 12-month median price forecast for BILI stock stands at $38.31.
Li Auto (LI)
- 52-week range: $16.86 – $41.49
Automaker Li Auto (NASDAQ:LI) manufactures and sells smart electric SUVs. Li ONE is a six-seat electric SUV with a range extension system and smart vehicle solutions. Metrics show its market share in China to be over 4%.
Li Auto put out Q1 results on May 10. Revenue reached $1.51 billion, representing a 10% decline from the previous quarter. Net earnings per ADS were 7 cents per diluted share, compared to a net loss of 3 cents a year ago. Free cash flow was $79.2 million. Cash and equivalents ended the period at $5.5 billion.
The Chinese electric vehicle (EV) maker delivered 28,687 Li ONE hybrid SUVs in the second quarter, up 63.2% YOY. Meanwhile, Li’s gross margin jumped by more than 5% over the past year. The EV maker recently revealed a new six-seater SUV called the Li 9. Li plans to start deliveries in August, anticipating 10,000 Li 9 deliveries in September alone.
LI stock has gained more than 15% YTD. However, shares are trading at a fairly high 7.5 times sales. Wall Street’s 12-month median price forecast is at $39.70.
Chinese Stocks to Buy: Nio (NIO)
- 52-week range: $11.67 – $47.38
Nio (NYSE:NIO) is a leading EV maker in the premium segment, known for innovations such as battery swapping and advanced autonomous driving technologies. Research points out to China’s “dominance in the global EV market with an overall share of 53%.” Therefore, investors are keeping a close eye on quarterly metrics and delivery numbers from Nio.
On Jun. 9, Nio announced Q1 results. Revenue came in at $1.56 billion, up 24.2% YOY. Adjusted diluted net loss per ADS was 13 cents, compared with 3 cents in the prior-year quarter. Cash and equivalents ended the period at $8.4 billion.
Vehicle deliveries in the first quarter grew 28.5% YOY despite a price hike in all EV models. More recently, deliveries in June jumped 60% YOY, driven by the launch of ES7 on Jun. 15.
Meanwhile, the automaker is on track to grow its business in Europe beyond Norway to Germany, Sweden, the Netherlands, and Denmark in 2022. Management forecasts Q2 revenue to grow by 10.6% to 19.4% YOY, supported by deliveries of 23,000 to 25,000 EVs.
NIO stock has fallen nearly 39% YTD. Shares are trading at 6.4 times sales. Meanwhile, analysts’ 12-month median price forecast stands at $30.
- 52-week range: $37.92 – $71.25
Chinese technology and entertainment conglomerate Tencent (OTCMKTS:TCEHY) offers internet services, including communication and social services, targeted advertising, financial technology (fintech), and business services. It is well-known for WeChat, the hugely popular messenger app, which has become the home screen for many Chinese smartphone users, as almost every function can be completed from inside the app.
The tech giant announced Q1 results on May 18. Revenue came in flat YOY at $21.3 billion, marking the company’s slowest growth rate since its inception. Adjusted net profit fell 24% to $4.1 billion. Cash and equivalents ended the quarter at $47.9 billion.
In terms of segments, Domestic Games revenues decreased by 1% due to measures regarding the protection of minors. On the other hand, International Games revenues grew by 4%, thanks to games including Valorant and Clash of Clans. Online advertising revenue decreased by 18% YOY, while Social and Others advertising revenue, which includes ads on WeChat, fell 15% YOY.
Investors are keeping a close eye on the mobile gaming business. It is expected to remain resilient with new game launches in Q2.
So far in 2022, TCEHY stock has lost 26%. Shares are trading at 26.2 times forward earnings and 5.2 times sales. Wall Street’s 12-month median price forecast is at $56.95.
Chinese Stocks to Buy: Trip.com (TCOM)
- 52-week range: $14.29 – $33.27
Trip.com (NASDAQ:TCOM) is the largest one-stop travel service provider in China, with a wide selection of hotels, flights, and related travel services. Its portfolio of brands includes its namesake Trip.com, Ctrip, Qunar and Skyscanner.
Analysts expect China’s tourism sector to reach $2.5 trillion by 2025. Therefore, investors should pay close attention to quarterly metrics from Trip.com.
The travel specialist issued Q1 financials on Jun. 28. With the latest resurgence of Covid-19 cases in China, revenue was down 12% from the previous quarter and roughly flat YOY at $649 million. Trip.com reported an adjusted loss of 1 cent per share, an improvement from a loss of 5 cents from the prior-year quarter. Cash and equivalents stood at $10 billion.
Trip.com’s international brands, Skyscanner and Trip.com, are well-positioned to benefit from a global travel recovery. Airline ticket bookings on its global platforms increased by 270% YOY, as most markets in Europe and Asia-Pacific region have eased their international travel restrictions considerably.
TCOM stock has declined almost 3% YTD. Shares are trading at a lofty 98 times forward earnings and 5.6 times sales. Meanwhile, analysts’ 12-month median price forecast stands at $31.23.
On the date of publication, Tezcan Gecgil, Ph.D., 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.