While the iShares China Large-Cap ETF FXI has experienced a downturn of -19% over the preceding year, a ray of hope shines on several Chinese ADRs (American Depository Receipts) that seem primed for a vigorous resurgence.
Currently, numerous Chinese stocks appear oversold amidst worries of a deceleration in China’s economic growth. Notwithstanding, there exist internet-commerce stalwarts in China that continue to uphold their appealing growth trajectories, alongside other companies capitalizing on robust business sectors.
The Chinese Equities Landscape
An intriguing aspect is that these stocks are presently trading at more rational valuations, affording access to a vast consumer base in China. Moreover, China retains its standing as the globe’s second-largest economy by nominal GDP and the largest in terms of purchasing power.
Key Stock Selections
Among the standout performers in the Zacks Internet-Commerce Industry, JD.com JD and PDD Holdings PDD both boast a Zacks Rank #1 (Strong Buy), akin to Amazon AMZN in the U.S. Alibaba BABA notwithstanding. The robust top and bottom-line growth exhibited by JD.com and PDD Holdings underscores their market share expansion, making them compelling additions to a portfolio at their prevailing levels.
JD.com, with its diversified range of quality consumer goods, anticipates a 5% sales upsurge in fiscal years 2024 and 2025, with total projections exceeding $160 billion. Crucially, JD.com foresees a marginal earnings uptick this year and a substantial 12% climb in FY25, reaching $3.53 per share.
On the other hand, PDD Holdings’ Pinduoduo platform enables participation in group purchasing arrangements for consumer products, evidencing exponential growth. Projected sales for fiscal 2024 are set to surge by 50% to $51.89 billion from $34.64 billion in 2023, with further expansion anticipated in FY25, soaring by 35% to $70.2 billion. EPS for PDD Holdings is projected to escalate by 29% this year and a remarkable 26% next year to $10.66 per share. Notably, EPS estimates have surged by 18% for FY24 and 19% for FY25 over the last 30 days.
JD and PDD are presently trading 39% and 24% below their respective 52-week peaks, offering P/E multiples significantly below 20X, providing notable discounts compared to the industry average of 27.4X and the S&P 500’s 22.1X.
Positioned at the vanguard of the automotive metamorphosis, Li Auto asserts a dominant presence in China’s smart energy vehicle sector, heralding a new era with electrified vehicles and autonomous driving technologies.
Exploring Opportunities with Li Auto
Boasting a Zacks Rank #2 (Buy), Li Auto shines within the Automotive-Foreign Industry, ranked in the premier 36% of all Zacks industries. Despite a 21% upswing over the last year, Li Auto’s stock has faltered by -19% year-to-date, presenting an enticing buying juncture.
In line with the adage that corrections can fortify long-term performance, LI currently trades at a more moderate 15.7X forward earnings multiple, with anticipated earnings per share quantum-jumping by 22% in FY24 and an astounding 54% in FY25 to $3.05. Additionally, Li Auto’s bolstered profitability is complemented by high double-digit revenue growth forecasts.
Completing our selection is Iqiyi, which holds a Zacks Rank #2 (Buy) and has been hailed as the Netflix NFLX of China. While the Netflix analogy may have been lofty, the risk-reward dynamic has amplified the allure of investing in Iqiyi’s stock, with the Zacks Film and Television Production and Distribution Industry positioned in the top 16%.
Having crossed the threshold of profitability last year, Iqiyi’s stock trades