Forget NIO, these 3 Chinese Stocks are Better Buys Right Now

NASDAQ: BIDU | Baidu Inc. ADR News, Ratings, and Charts

BIDU – Optimism surrounding the EV revolution has helped NIO Inc. (NIO) gain significantly over the past year. However, given its high valuation, we think it might be wise to invest in other Chinese stocks. Specifically, we suggest Baidu (BIDU), Vipshop (VIPS), and Weibo (WB) because these companies are strategically positioned to deliver big returns in the coming months.

The shares of Chinese Electric Vehicle (EV) maker NIO Inc. (NIO) have climbed 1177.2% in price over the past year on investor optimism about  the company’s  upside potential in the revolutionary EV market based on the success of its battery-as-a-service (Baas) model. However, several new entrants to the sector have been vying for market share, which could dampen the company’s outlook. NIO also faces intense competition from industry leaders such as Tesla, Inc. (TSLA) and General Motors Company (GM). Moreover, with a trailing-12-month p/s of 33.99x (versus the industry average of 1.35x), NIO looks significantly overvalued now.

So, it might  be wise to consider other Chinese stocks that are well-positioned to gain in the coming months.

The world’s second-largest economy has managed a V-shaped recovery from last year’s COVID-19 pandemic-driven economic lows. But a recent, new viral outbreak in China has necessitated a reinstitution of some travel restrictions. The setback has reinforced citizens’ dependence  on e-commerce companies ahead of the country’s New Year on February 12. Advertisers are expected to ramp up spending on social media platforms  to reach more consumers. In fact, according to a new report from the Chinese government, from March 2020 through  December 2020, online shoppers in China increased by 72.15 million to 782 million.

Against this backdrop, we expect Baidu, Inc. (BIDU), Vipshop Holdings Ltd. (VIPS), and Weibo Corporation (WB) to benefit directly from China’s New Year business bump and beyond in the near term.

Baidu, Inc. (BIDU)

The Chinese language Internet search provider BIDU was founded in 2000 based on the principles of “simplicity and reliability.” Through its website, the company  enables users to access  news, images, documents and multimedia files, through links. In addition to its core web search product, the company drives  several popular community-based products, including Baidu PostBar, which is the world’s first and largest Chinese-language query-based searchable online community platform.

The company’s revenue surged 8.4% sequentially to $4.16 billion for the third quarter ended September 30, 2020. Its subscribers in the iQIYI (an online video platform) segment hit 104.8 million in the third quarter, and membership revenue increased 7% year-over-year. Its app’s daily active users were reported to be 206 million, and its monthly active users reached 544 million. Its non-GAAP net income increased 59.3% year-over-year to $1 billion, and its non-GAAP earnings per ADS increased 61.4% year-over-year to $3.

In keeping with the company’s growth outlook,  analysts expect BIDU’s revenue to increase 12.8% for the quarter ended December 31, 2020, 24.2% for the quarter ending March 2021 and 15.1% in 2021. The company’s EPS is expected to grow 39.7% for the quarter ending March 31, 2021 and 12.3% in 2021. BIDU  has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.

A decision regarding changing the company’s authorized share capital is expected to be taken at an  extraordinary general meeting of shareholders (EGM) scheduled for March 1. On January 10, BIDU announced its plan to establish a company to produce intelligent electric vehicles (EV) in partnership with multinational auto manufacturer Zhejiang Geely Holding Group.

Over the past year, BIDU’s  stock has gained 96.7% to close yesterday’s trading session at $258.43. It is currently trading just 2.5% below its 52-week high of $264.94, which it hit on January 20.

BIDU’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The stock also has a grade B for Value, Momentum and Quality.

In total, we rate BIDU on eight  different levels. To see the other ratings (Growth, Stability and Sentiment) for BIDU, click here.

In the 87-stock China group, BIDU is ranked #13.

Vipshop Holdings Ltd. (VIPS)

Headquartered in Guangzhou, China, VIPS is an online discount retailer for various brands. The company operates mainly through four segments — Vip.com, Shan Shan Outlets, Internet Finance, and others. VIPS has pioneered the online discount retail model in China and has become the sector leader, trusted by its customers and brand partners.

For the third quarter ended September 30, 2020, VIPS’  total revenue increased 18.2% year-over-year to $3.41 billion. Its gross merchandise value (GMV) increased 21% year-over-year. And the  number of its active customers increased 36.6% year-over-year to 43.4 million. Its total orders increased 35.4% year-over-year to 172.8 million and its net income increased 42.1% year-over-year to $183.28 million.

Analysts expect VIPS’ revenue to increase 28.9% for the quarter ended December 31, 2020, 47.7% for the quarter ending March 31, 2021 and 17.7% in 2021. Its  EPS is expected to increase 22.5% for the quarter ended December 31, 2020, 61.9% for the quarter ending March 2021 and 23.5% in 2021. VIPS has an impressive earnings surprise history; the company beat consensus EPS estimates in each of the trailing four quarters.

There is some speculation that  VIPS has mandated three investment banks to administer  a follow-on  listing of shares on the Hong Kong exchange in the second half of 2021. In December, Moody’s Corporation (MCO) affirmed VIPS’ Baa1 issuer rating, which indicates a stable outlook. In October, VIPS appointed David Cui as its new CFO.

The stock has rallied 151.7% over the past year to close yesterday’s trading session at $33.58. It has  gained 19.5% year-to-date.

VIPS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The stock also has a grade B for Growth.

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

VIPS is ranked #12 in the China group.

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

 

Weibo Corporation (WB)

Founded in 2009, WB operates as a social media platform for people to discover, create, and distribute Chinese-language content. The company’s business model allows people and organizations to express themselves in real time and  interact with others on a global platform.  WB operates through two segments — advertising and marketing services, and other services.

The company’s revenue has increased 20.2% sequentially to $465.74 million for the third quarter ended September 30, 2020. This was driven primarily  by the company’s 22.3% sequential increase in revenue from advertising and marketing, which was reported at $416.67 million. Its average daily active users (DAUs) were reported at 224 million, which represents a net addition of roughly eight  million users on a year-over-year basis. WB’s non-GAAP EPS increased 32% sequentially to $0.66.

WB’s gradual improvement is expected to  continue in the coming months. Analysts expect the company’s revenue to increase 25.4% for the quarter ending March 31, 2021 and 14.1% in 2021. WB’s EPS is expected to grow 60% for the quarter ending March 31,  2021 and 19.9% in 2021. The company has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.

WB announced in September that that it expects its parent company, Sina Corporation (SINA),   to go private in  a $2.6 billion deal. The transaction is expected to close during the first quarter of 2021.

WB’s stock has gained 22.9% so far this year to close yesterday’s trading session at $50.36. In the words of Gaofei Wang, WB CEO, “We are pleased with Weibo’s recovery trend, despite challenges [that still persist]”. Weibo is  a Chinese microblogging website that was . launched by Sina Corporation in 2009. ”.

WB has a grade B both for Momentum and Quality in our POWR Ratings. In addition to the POWR Ratings grades I have just highlighted, you can see WB’s ratings for Growth, Value, Stability and Sentiment here.

The stock is ranked #20 in the China group.

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

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BIDU shares were trading at $264.54 per share on Friday morning, up $6.11 (+2.36%). Year-to-date, BIDU has gained 22.34%, versus a 3.39% rise in the benchmark S&P 500 index during the same period.


About the Author: Manisha Chatterjee


Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...


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