All three major U.S. stock indexes ended last week with more than 6% negative returns. Investors’ concerns over the second wave of the coronavirus, mixed corporate earnings, and the uncertainties related to the upcoming presidential election, led to a sell-off in the US stocks.

The giant tech companies reported mixed-bag results last month with Twitter (TWTR) and Facebook (FB) witnessing slow user growth, Apple (APPL) having weak iPhone sales, and Amazon (AMZN) incurring higher costs due to COVID-19. Moreover, the rising number of coronavirus cases in the United States and implementation of fresh lockdown measures in Europe enhanced investors’ anxiety. However, some of the China stocks rallied during the same period, signifying the fact that investors preferred betting on the economy’s steady recovery amid uncertainties in the domestic markets.

While China’s GDP is predicted to expand by 1.9% this year, the growth could accelerate to 8.2% next year. And China continues to be the only major economy in the world that has witnessed growth so far this year. Moreover, as Biden has a higher chance of winning the White House, according to the recent polls, investors are expecting it to be a boon for the world’s second largest economy. Particularly, the two countries may have a better trade relationship if Biden comes in power.

China aims to emphasize on technology and focus on quality rather than pace of growth in the coming years, according to the 14^th five-year plan released by the country last month. So, US investors should consider betting more on China stocks than the stocks of U.S. companies right now.

NIO Inc. (NIO), IQIYI, Inc. (IQ), Vipshop Holdings Limited (VIPS), and Li Auto Inc. (LI) have been excellent performers amid concerns related to the US economy, and are positioned to deliver further gains in the coming months.

NIO Inc. (NIO)

Based in Shanghai, China, NIO is an emerging player in the Electrical Vehicles (EV) market. In addition to designing, manufacturing, and selling EVs, the company is also known for its Battery-as-a-Service (BaaS) provided for power swap. The company sells EVs under the brand names of EP9, EVE, and ES8.

NIO’s total revenue increased 146.5% year-over-year to $493.4 million for the second quarter that ended June 2020. The company’s vehicle gross profit margin increased historically by 9.7% year-over-year, mainly driven by the decrease in purchasing price of certain materials and lower unit manufacturing costs. NIO set a record delivering 12,206 vehicles in the three months ending in September, representing 154.3% year-over-year growth.

Analysts expect NIO’s revenue to increase 145.6% for the quarter that ended September 2020, and 79.3% for 2021. The company’s EPS is expected to increase 52% in 2020 and 33.3% in 2021. Growing demand for EVs in a world worried about climate change, positions the stock well for solid growth in the future. The stock reached its 52-week high of $32.20 on October 29^th, gaining 660.7% year-to-date.

On October 29^th, for the first time, NIO’s mass-produced vehicle exceeded 5,000 units per month. The company also won the bid for the Chinese annual government procurement project in Beijing for 2020 to 2022. NIO’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.

How does NIO stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating

You can’t ask for better. The stock is also ranked #4 out of 115 stocks in the China industry.

IQIYI, Inc. (IQ)

Founded in 2009, IQ is a leading online entertainment service provider in China. A subsidiary of Baidu Holdings Limited (BIDU), IQ together with its subsidiaries offer internet video, online games, live broadcasting, online literature, animations, e-commerce, and social media platform. It is distinguished by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies.

IQ’s total revenues increased 4% year-over-year to $1.0 billion for the second quarter that ended June 2020. Membership services revenue increased 19% year-over-year to $572.7 million. The company focuses on high-quality, which have been translated into the financial results too. Content distribution revenue increased 66% year-over-year to $121.8 million.

Analysts expect IQ’s revenue to increase 7.6% in 2020 and 14.1% in 2021. The company’s EPS is expected to increase 14.5% in the current year, 41% next year, and at a rate of 5.8% per annum in the next five years. IQ’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.

On October 5th, IQ released its first original film 13-part film instalments which will be released in 2020 and 2021 as part of its original film initiative. Last month, the company also announced the upcoming releases of more than 200 shows at its annual iJOY Conference held in Shanghai. The stock gained more than 17% year-to-date.

IQ’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade, Peer Grade, and Industry Rank, and a “B” for Buy & Hold Grade. In the China group, it’s ranked #17.

Vipshop Holdings Limited (VIPS)

VIPS is a leading online discount retailer for various brands in China. Dominating in the flash sales domain, the company operates through Vip.com, Shan Shan Outlets, Internet Finance and others. VIPS also offers warehousing, logistics, product procurement, research and development, technology development, and consulting services. It is backed by Chinese tech giants Tencent and JD.com (JD).

VIPS’ strong second quarter (ended June 2020) results have been driven by its strong merchandising capability. The gross merchandise value increased 9% year-over-year. Total net revenue increased 6% year-over-year to $3.4 billion. The number of active customers increased 17% year-over-year to 38.8 million. With the economy reviving, the total number of orders also increased 15% year-over-year to 170.5 million.

Analysts expect VIPS’ revenue to increase 14.4% for the about-to-be-reported quarter, 9% this year, and 13.7% next year. The company’s EPS is expected to increase 18.3% in the current year, 20.3% next year, and at a rate of 2.3% per annum in the next five years.

Last month, VIPS appointed Mr. David Cui as its new Chief Financial Officer. In the words of Mr. Eric Shen, Chairman and CEO of VIPS, “Looking ahead, we will continue to focus on enhancing our product offerings, working more effectively with our suppliers to provide our customers with top-notch apparel assortments.” VIPS has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. The stock has gained more than 51% year-to-date.

It’s no surprise that VIPS is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. Among the China group, it’s ranked #19.

Li Auto Inc. (LI)

Headquartered in Beijing, China, LI is a newer entrant in China’s energy vehicle market. Through its subsidiaries, the company designs, develops, manufactures, and sells smart electric sport utility vehicles (SUVs). It is also the first one to successfully commercialize extended-range electric vehicles in China. Founded in April 2015, the company went public in July 2020. LI closed Friday’s trading session at $20.17, gaining 16% over the past month.

LI delivered 3,692 Li ONEs in October representing a sequential increase. The company is scheduled to report third quarter 2020 financial results on November 13^th. Analysts expect LI’s revenue and EPS to increase 97.3% and 50%, respectively next year.

LI announced the adoption of NVIDIA’s (NVDA) Orin system-on-a-chip (SoC) last month. The company will be the first OEM equipping its vehicles, the full-size extended-range premium smart SUV, which is set to be launched in 2022. The stock gained 22.5% since it went public. Under our POWR Ratings system, LI has been accorded a “B” grade for Industry Rank.

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NIO shares were trading at $33.39 per share on Monday afternoon, up $2.81 (+9.19%). Year-to-date, NIO has gained 730.60%, versus a 3.90% 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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