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Finance

4 High-Growth Chinese Stocks to Buy Now

It seems a no brainer that after handily defeating the COVID-19  pandemic while other nations are still struggling to contain it, the Chinese economy has regained its stride. China said its GDP expanded by 2.3% last year to 101.6 trillion yuan, which sizes the economy at only $6.2 trillion behind the U.S. The above-average economic growth and a potentially favorable trade environment under the Biden administration we believe should help the Chinese high-growth stocks maintain their bull run this year.

While growing regulatory scrutiny of many Chinese firms’ dealings around the world has made it harder for them to operate smoothly, both at home and abroad, eventually the impact of this scrutiny will taper off because most of these stocks are fundamentally sound. Investors’ confidence in Chinese stocks is reflected in iShares MSCI China ETF’s (MCHI) 46% gains over the past year versus  the SPDR S&P 500 Trust ETF’s (SPY) 16.5% returns.

With  primary economic indicators in good shape, China’s recovery should broaden this year following a substantial increase in production and spending. We think this bodes well for Chinese high-growth stocks Tencent Holdings Limited (TCEHY), Baidu, Inc. (BIDU), and NetEase, Inc. (NTES).

Tencent Holdings Limited (TCEHY)

Headquartered in Shenzhen, China, TCEHY is an investment holding company that provides value-added services (VAS) and Internet advertising services in China, the U.S. , Europe, and internationally. It operates through VAS, FinTech and Business Services, Online Advertising, and an Others segment. The company is also involved in the production, investment, and distribution of films and television programs for third parties.

On December 18, TCEHY announced that a Tencent-led consortium had exercised its call option to acquire an additional 10% equity interest in Universal Music Group. This strengthened long-term partnership should help TCEHY to expand its opportunities and grow its user base significantly.

In November, Tencent Cloud announced the establishment of Tencent Distributed Database (TDSQL), its financial-certificated infrastructure, which has been deployed in the new core system of Bank Neo Commerce in Indonesia. This development should  open up more avenues for TCEHY to capture new opportunities in the international market.

TCEHY’S revenue has increased 29% year-over-year to RMB125,447 million in the third quarter ended September 30, 2020. Its operating profit grew 34% from the year-ago value to 38,116 million, while its operating margin increased to 30% from 29% last year. The company reported a total cash of RMB265,892 at the end of this period.

The company’s revenue has grown at a CAGR of 28.3% over the past three years, while its EBITDA grew at a CAGR of 22.6% over this period. This reflects the company’s robust growth over the past few years.

The consensus EPS estimate of $2.55 for 2021 represents  a 32.1% improvement year-over-year. Moreover, TCEHY beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 87.7% over the past year.

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TCEHY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

TCEHY has a grade of B for Momentum, Stability, and Sentiment. Of the 87 stocks in the C-rated China industry, TCEHY is ranked #17. To see additional POWR Ratings for Growth, Value, and Quality for TCEHY, click here.

Baidu, Inc. (BIDU)

Founded in 2000, BIDU is a global internet service provider that operates through two segments — Baidu Core and iQIYI. The Baidu Core segment includes the Baidu App, while iQIYI provides an online entertainment service.

In January, BIDU announced its plan to establish a company to produce intelligent electric vehicles, and that it has entered a strategic partnership with multinational auto manufacturer Zhejiang Geely Holding Group. BIDU believes that with Geely’s expertise as a leading automobile and electric vehicle (EV) manufacturer, the new partnership will pave the way for the company’s growth in the passenger vehicles market.

On December 8, the company released new intelligent vehicle solutions for automakers and several high-end intelligent driving products during the second Apollo Ecosystem Conference. BIDU also announced a partnership with ride-hailing app Shouqi to allow users to hail a Robotaxi through the app.

BIDU’s revenue increased 8% sequentially to $4.16 billion in the third quarter ended September 30, 2020. Its operating income grew 161% year-over-year to $907 million, while its adjusted EBITDA rose 77% year-over-year to $1.34 billion over this period.

The company’s revenue has grown at a CAGR of 9.4% over the past three years, while its tangible book value grew at a CAGR of 18.4% over this period. BIDU’s total assets grew at a CAGR of 8.9% over the past three years.

A consensus EPS estimate of $1.75 for the quarter ending March 31, 2021 represents a 38.9% improvement year-over-year. BIDU has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.99 billion for the next quarter represents  a 23.8% increase from the same period last year. The stock has gained 106.6% over the past year.

It is no surprise that BIDU has an overall rating of B, which equates to Buy in our POWR Ratings system. BIDU has a grade of B for Quality, Value and Momentum. In the same industry, it is ranked #13.

Click here to see the additional POWR Ratings for BIDU (Stability, Sentiment, and Growth).

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The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

NetEase, Inc. (NTES)

Headquartered in Hangzhou, China, NTES is a leading Chinese internet and online game services provider that offers online services that focus on content, community, communication, and commerce in China, Japan and North America. The company operates in three segments – Online Games Services, Youdao, and Innovative Businesses & Others.

On December 27, NTES announced that a concert by TFBOYS, one of China’s most popular boy bands, held on its platform had broken the Guinness World Records for the most viewed paid concert. The achievement reflects the company’s ability to proactively explore different approaches to engage users and simultaneously diversify its monetization channels.

NTES’ total revenue has increased 27.5% year-over-year to $2.75 billion in the third quarter ended September 30, 2020. Its online game services, which accounted for more than 74% of the NTES’ total revenue, increased 20.2% year-over-year. The company’s gross profit rose 25.6% year-over-year to $1.46 billion, and its net income increased 76.4% year-over-year to $441.59 million.

The company’s revenue has grown at a CAGR of 10.5% over the past three years, while its net income grew at a CAGR of 2.6% over this period. NTES’s total assets grew at a CAGR of 29.6% over the past three years. This reflects the company’s strong potential over the past few years.

A consensus EPS estimate of $4.33 for 2021 represents  a 20.6% improvement year-over-year. NTES has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $13.5 billion for the current year represents an 18.9% increase from the same period last year. The stock has gained 83.5% over the past year.

NTES’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. NTES has a grade of B for Growth, Momentum and Sentiment. Among the 87 stocks in the same industry, it is ranked #5.

In total, we rate NTES on eight different levels. Beyond what we stated above we also have given NTES grades for Stability, Value, and Quality. Get all the NTES ratings here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Vipshop Holdings Limited (VIPS)

VIPS is a leading Chinese online discount retailer of a variety of brands. It operates through four segments: Vip.com, Shan Shan Outlets, Internet Finance, and Others. The company provides apparel, home appliances, furnishings and decor, toys and games, and cosmetics through online platforms such as vip.com and vipshop.com. In addition, VIPS offers services in warehousing, logistics, research and development, and consulting.

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On November 2, VIPS announced the appointment of Pengjun Lu as Co-Chief Technology Officer. His extensive experience in big data and personalization in China’s internet industry should enable the company to improve customer experience on VIPS’ platform.

VIPS’ revenue has grown 18.2% year-over year to RMB23.20 billion in the third quarter ended September 30, 2020. Its net income has risen 42.1% from the prior-year quarter to RMB1.20 billion, while its gross profit rose 15.3% from the year-ago value to RMB38.30 billion. The number of active VIPS customers increased 36% year-over-year to 43.40 million over this period.

The company’s revenue has grown at a CAGR of 22.4% over the past five years, while its net income grew at a CAGR of 34% over the past three years. VIPS’s EPS grew at a CAGR of 29.2% over the past three years. This reflects the company’s robust growth potential over the past few years.

A consensus EPS estimate of $0.34 for the current quarter, ending March 31, 2021, represents a 61.9% improvement year-over-year. VIPS has an impressive earnings surprise history as well; it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.95 billion for the current quarter represents a 47.2% improvement from the same period last year. The stock has gained 145.7% over the past year.

VIPS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. VIPS has a Growth Grade of B, and a Value and Momentum Grade of C. The stock is ranked #12 in the same industry.

In addition to the POWR Ratings grades I have just highlighted, you can see the VIPS ratings for Stability, Sentiment, and Quality here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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TCEHY shares were trading at $95.00 per share on Monday morning, down $0.40 (-0.42%). Year-to-date, TCEHY has gained 32.15%, versus a 4.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…

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