The Chinese economy has been recovering faster than the rest of the world, especially with COVID-19 cases soaring in the United States and Europe. Add in the fact that a Joe Biden administration will be much less confrontational and more cooperative with China, there’s reason to believe that many Chinese stocks could see robust gains in the months to come. That’s why I am highlighting three top Chinese stocks that were recently upgraded by analysts.
Wall Street analysts are responsible for covering a select group of stocks. In their coverage, they provide in-depth research on a company’s current financial situation and future prospects. These insights are the basis for their ratings. Analysts use different ratings to evaluate a stock: such as Buy and Sell or Underweight and Overweight. Investors should pay attention to these upgrades and downgrades because they can typically affect a stock’s price.
NIO Inc. (NIO)
Considered the “Tesla of China,” this Chinese company is cementing its status in the rapidly growing electric vehicle (EV) industry. The company recently announced a record-breaking 5,000 deliveries in October. NIO has delivered over 31,000 vehicles this year, an 111% increase from the previous year. The company is currently worth more than $65 billion, which is more than both General Motors (GM) and Ford (F).
NIO is seeing rising demand for its ES6 and ES8 models, which is helping to drive revenue. Another growth driver for the company is its new battery system. The company recently announced it would release a 100 kilowatt/hr battery, which will allow it to compete with Tesla (TSLA). The company also offers a Battery as a Service (BaaS) model, a subscription plan for batteries. This allows NIO owners to swap their batteries once they run out of juice.
The stock was recently upgraded, as Rebecca Wen of JP Morgan raised her price target for NIO from $41 to $46, with an “Overweight” rating. She believes NIO will reach a 30 percent market share by 2025, as the company has become a leader in the EV industry and transforming the business model to one that provides services through platforms and content.
The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in three out of the four components that make up the POWR Ratings, including Trade Grade, Buy & Hold Grade, and Peer Grade. The final component, Industry Rank, has a grade of “B.” The stock is also ranked #3 in the China industry.
Keep a close eye on the stock next week, as it is reporting its latest financial results on November 17th.
Alibaba Group Holding Ltd (BABA)
Moving from the “Tesla of China” to the “Amazon of China,” BABA has seen its stock trending downward this week. This is because ex-CEO and Founder, Jack Ma, criticized the Chinese financial system, which led to a suspension of the ANT Financial IPO. BABA owns 30% of the company, and the IPO was supposed to be the largest on record.
I see this as a short blip, as the company is the e-commerce leader in the most populated country in the world. One of the biggest trends this year has been e-commerce. Orders are expected to soar over the next few weeks as shoppers prepare for the holidays. In addition, its strengthening cloud business should continue to drive top-line growth.
Raymond James analyst Aaron Kessler recently upgraded the stock to a “Strong Buy” with a $330 price target. That would indicate a potential 25% upside. Kessler is a big fan of the company as he expects continued China e-commerce growth, with BABA being the primary beneficiary.
The stock is rated a “Buy” in our POWR Ratings system. It holds grades of “B” for Trade Grade, Peer Grade, and Industry Rank. It is also ranked #15 out of 115 stocks in the China industry.
Note that BABA is one of the stocks in the Reitmeister Total Return portfolio. Learn more here.
Baidu, Inc. (BIDU)
From the “Amazon of China” to the “Google of China,” BIDU is China’s #1 internet search provider. But like its American counterpart, it isn’t only a one revenue stream business. BIDU’s cloud business is expected to grow 30% annually through 2023. It is also branching out into artificial intelligence and apps. In its most recent quarter, AI and apps helped the company’s adjusted EBITDA margin reach 41%.
Much like Alphabet/Google’s (GOOGL) self-driving project Waymo, BIDU has Apollo. The Apollo segment features a Robotaxi and Apollo Minibus, which operate with level 4 autonomy. Apollo also has a valet parking product, which will be released in China, fitted in a Weltmeister vehicle. The Chinese automobile market is the largest in the world, which should provide BIDU additional revenue growth.
Barclays analyst Gregory Zhao recently upgraded the stock from Equal-Weight to Overweight. He also raised the price target from $140 to $170. He feels that the company’s marketing division is back on track for strong growth. He also sees the company’s AI-backed Cloud, XiaoDu smart speaker, and autonomous driving segments starting to deliver results.
BIDU is rated a “Strong Buy” in our POWR Ratings system. The stock has grades of “A” in Trade Grade, Buy & Hold Grade, and Peer Grade and a “B” for Industry Rank. The stock is also ranked #2 in the China industry.
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NIO shares . Year-to-date, NIO has gained 1,101.49%, versus a 11.32% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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