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Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? JD.com (JD), NetEase (NTES), Li Auto (LI), Xpeng (XPEV) and BYD Co. (BYDDF).
China is the world’s most-populous nation and the second-largest economy with a booming urban middle class and amazing entrepreneurial activity. Often dozens of Chinese stocks are among the top performers at any given time, across an array of sectors.
Delisting fears have hung over Chinese companies listed in the U.S. for quite some time. China has refused to allow U.S. auditors to review Chinese companies’ books, which U.S. law requires. The U.S. has threatened to delist Chinese companies as a result.
In recent weeks, various reports hinted at a possible compromise, while others signaled less optimism. The U.S. Securities and Exchange Commission has been building a list of companies that are at delisting risk. The news has sent U.S.-listed Chinese stocks soaring and plunging. Shares skyrocketed on March 16 as Beijing signaled support for Chinese companies listed in the U.S and said that a crackdown on internet giants will end “as soon as possible.”
U.S.-listed Chinese stocks rebounded generally on April 1, on a Bloomberg report that Beijing is willing to give U.S. auditors full access to more than 200 Chinese companies listed in New York. If that happens, it would end delisting fears for all but a few U.S.-listed Chinese companies with sensitive data.
On April 2, China’s securities regulator said it will release revised regulations for Chinese companies listed overseas. Notably, this line will be removed from the rules: “On-site inspections shall be conducted primarily by Chinese regulators or rely on the results of inspections by Chinese regulators.”
However, even if a tech crackdown and delisting fears recede, there are still major concerns. China has reimposed sweeping Covid restrictions as it faces its biggest coronavirus outbreak since early 2020. Shanghai is in the midst of a two-part lockdown.
As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:
In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world’s biggest auto market.
Several Chinese financial firms or brokerages listed in the U.S.
Several China stocks are in solar power.
For-profit education Chinese stocks are a notable nontech sector.
Don’t forget stocks in other fields, such as riding-hailing firm Didi Global (DIDI), beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).
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One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.
KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S.-listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times levered ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times levered ETF shorting Hong Kong’s biggest companies.)
As always, investors should be following the overall stock market trend, adding exposure in confirmed uptrends and paring exposure or going fully to cash in corrections or bear markets. Right now the stock market is in a confirmed uptrend.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Focus on the best stocks to buy and watch, not just any Chinese company.
IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.
Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.
Start with those with strong earnings growth, such as Pinduoduo stock. If they’re not profitable, at least look for rapid revenue growth as with Xpeng. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.
Chinese stocks in general are out of favor now.
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| Company | Ticker | Industry Group | Composite Rating |
|---|---|---|---|
| Li Auto | LI | Auto Manufacturers | 75 |
| NetEase | NTES | Computer-Software Gaming | 78 |
| BYD | BYDDF | Auto Manufacturers | n.a. |
| JD.com | JD | Retail-Internet | 50 |
| Xpeng | XPEV | Auto Manufacturers | 28 |
So let’s analyze these five top China stocks: Li Auto stock, NetEase stock, BYD stock, Xpeng stock and JD.com stock.
Li Auto is one of several Chinese electric vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).
The company is flirting with being profitable consistently, at least on an adjusted basis. On Feb. 25, Li Auto reported Q4 earnings of 2 cents a share, flat vs. a year earlier and beating views for a small loss. Revenue also topped views.
Li Auto has seen huge sales growth from its one current model, the Li One SUV. The Li One is actually a hybrid, with a small gasoline engine to extend its range.
Li Auto delivered 11,034 Li One SUVs in March, up 125% vs. a year earlier and 31% from February. That was at the high end of the company’s implied target of roughly 9,300-11,300 vehicles. Li sold 31,716 vehicles for the first quarter.
The Chinese New Year likely affected EV sales in February, while a 30% EV subsidy cut on Jan. 1 affected pulled some January sales into December.
Li Auto is expected to unveil a second, larger hybrid SUV in Q2.
After a huge run from its July 2020 IPO to a record 47.70 on Nov. 24, 2020, Li Auto stock plunged to 15.98 in May.
Shares broke out in early December from a late 2021 bottoming base within that larger consolidation, but that quickly failed.
After rebounding in February, shares sold off hard in March to their lowest levels since last May.
Li stock skyrocketed in the week ended March 18. The stock moved back above its 50-day line on April 1.
The automaker has a dual listing on the Hong Kong exchange.
Li stock has a 75 IBD Composite Rating out of a best possible 99.
Bottom line: Li Auto stock is not a buy.
NetEase is a Chinese mobile gaming giant.
It’s profitable, but growth has been spotty in recent quarters amid a Chinese government crackdown on video games. NetEase earnings surged 333% in the fourth quarter vs. a year earlier, with revenue growth picking up to 27%.
NetEase stock, like many other Chinese internets, has struggled over the past year. NTES stock peaked at 134.33 in February 2021, tumbling to 77.79 last August. Shares rallied to 118.19 on Nov. 22, right as the Nasdaq peaked, then tumbled back below its 50-day and 200-day lines.
Shares hit a 22-month low on March 14, but soared for the week.
NetEase jumped above its 50-day on April 1 but hit resistance at its 200-day line.
Bottom line: NTES stock is not a buy.
BYD Co. is the biggest pure-play Chinese EV maker, making electric cars and buses, as well as many hybrids. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.
Notably, BYD is profitable, in sharp contrast to Li Auto, Nio and Xpeng Motors. BYD’s Q3 profit fell vs. a year earlier, while revenue rose modestly.
BYD reported 2021 results on March 29 that appeared to be below estimates.
BYD on Sunday reported March sales of new energy sales hit 104,878, up 333% vs. a year earlier. That’s up from 88,283 NEV sales in February, with the China New Year affecting sales. BYD sold 93,168 NEV vehicles in January, when a 30% subsidy cut in China affected a lot of EV makers.
The March total includes 104,338 passenger cars. Of that, BYD sold 53,664 pure electric vehicles, up 229% from a year earlier. Plug-in hybrid sales skyrocketed 615% to 50,674. Hybrid sales have surged thanks to a new, fuel-efficient DM-i system that provides substantial battery range.
As of the end of March, BYD has ended production of its traditional gas-powered cars. Sales had dwindled to 2,759 in February.
The automaker is now conservatively targeting 1.5 million in sales, or up to two million if supply constraints ease.
BYD launched the Yuan Plus in China on Feb. 19. The compact SUV also has begun pre-sales in Australia as the Atto 3, entering that market. The Yuan Plus also will enter the Singapore market. Exports are likely to be a big part of BYD’s future, as production continues to ramp up sharply.
BYD recently teased several new models. The BYD Seal is part of the Ocean line of EVs named after ocean animals, following the BYD Dolphin’s strong debut late last year. Both are headed for Australia under the “Atto” brand over the next year.
The Seal is a Model 3 rival, but significantly cheaper.
The BYD Destroyer, also a sedan, is part of a new Warship line of DM-i hybrids. BYD also showed some early images of another Warship hybrid, a midsized SUV that could be a cheaper alternative to Li Auto’s Li One.
BYD recently launched a presale for two more-advanced hybrid versions of its BYD Han, with an electric-only range of up to 150 miles on a China standard. The flagship BYD Han already comes in all-electric and an older, DM hybrid form.
Like Nio and Xpeng, BYD began selling EVs in Norway in late 2021, starting with the Tang SUV.
Toyota reportedly will make a small EV car for the China market in late 2022, using BYD Blade batteries. It’s possible that BYD will play a big role in Toyota’s new, sweeping EV push in the coming years.
BYD is starting to license its DM-i hybrid system to other EV makers.
Shares broke out of a double-bottom base with a 35.35 buy point in Oct. 15, then kept running. BYD stock hit a record 41.24 in early November, but sold off, tumbling below the 50-day line. Shares closed below their 200-day line on Jan. 24.
BYD stock plunged to a nine-month low on March 14, but rebounded powerfully for the week. Shares rose to just below its 50-day line on April 1.
BYD is listed in Hong Kong and trades over the counter in the U.S. So the BYDDF stock chart is prone to lots of little gaps up and down. But it also means that BYD is at not at threat of a U.S. delisting.
Warren Buffett’s Berkshire Hathaway is a longtime investor in BYD. Cathie Wood has been increasing Ark Invest’s small stake in recent weeks.
Bottom line: BYD stock is not a buy.
Tesla Vs. BYD: Which Booming EV Giant Is The Better Buy?
Xpeng makes the G3 small SUV, the P7 sedan and the smaller P5 sedan. The P5 sedan, officially launched in mid-September, is the first production car to come with Lidar. On Nov. 12, Xpeng unveiled the G9 SUV, saying it’s targeted for international markets. The fast-charging SUV is due to launch in Q3 2022.
The EV maker has now opened P5 reservations in Norway, Denmark, Sweden and the Netherlands. Xpeng already sells some G3 SUVs and P7 sedans in Norway.
The company on March 28 topped Q4 revenue forecasts and reported a smaller-than-expected Q4 loss.
XPeng delivered 15,414 EVs in March, up 202% vs. a year earlier and a 148% increase vs. February. Q1 deliveries hit 34,561 vehicles. That topped company forecasts for 33,500-34,000 EVs in Q1 and implied March deliveries of around 14,600.
XPEV stock peaked at 74.49 in November 2020, nearly tripling from an IPO base. Shares then tumbled to 22.73 in May 2021. Shares in March skidded to their worst levels since late 2020, not far from all-time lows.
XPEV stock leapt 29% on March 16, part of a big week. But shares are still well below their 50-day and 200-day lines.
Shares rallied this past week on earnings and March sales.
Bottom line: Xpeng stock is not a buy.
JD.com is a Chinese e-commerce giant. It’s showing a bit more fight than rivals such as Alibaba.
JD.com reported better-than-expected fourth-quarter earnings on March 10, while revenue was in line.
JD.com stock peaked at 108.29 on Feb. 17, 2021 and bottomed at 61.65 on July 25. Shares hit a multi-month high in November, but then tumbled until early January.
On Dec. 23, shares fell hard after Tencent Holdings (TCEHY) said it’ll slash its stake in JD.com to 2.3% from 17%, giving the shares to its investors. The two internet giants will maintain close business ties.
Shares gapped above their 200-day and 50-day lines on Jan. 20, as many Chinese internet giants rallied on monetary stimulus and other reported moves. But JD.com stock has tumbled to its worst levels since May 2020.
JD stock skyrocketed 39% on March 16. Shares are still below their 50-day line.
Bottom line: JD.com is not a buy.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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