China stocks have become much more attractive now that former President Trump has left office. President Biden appears to be more willing to work with the country on economic matters.

Unlike the former President, President Biden is less likely to delist China stocks from U.S. stock exchanges. This is good news for investors of Chinese companies. 

Tal Education Group (TAL - Get Rating) and Yum China Holdings (YUMC - Get Rating) are two of the top China stocks available to the investing public. Below, I provide a look at these two stocks to help investors determine which has more merit.

Tal Education Group (TAL - Get Rating)

TAL is a K through 12 educational services provider. To be more specific, TAL provides tutoring services to Chinese students. These tutoring services are provided in small classes as well as customized premium one-on-one services. Furthermore, TAL also provides tutoring through its convenient online learning platform.

TAL is a POWR Ratings dud with an overall grade of D, which translates into a Sell rating. TAL has a Growth Grade of F and grades of D in the Momentum, Value, and Sentiment components. Click here to find out how TAL grades in the Quality and Stability components. Out of 70 publicly traded companies in the China industry, TAL is ranked 63rd. You can find top stocks in this industry by clicking here.

Analysts are bullish on TAL, establishing an average target price of $82.59 for the stock. If TAL hits this anticipated price point, it will have popped by 72%. TAL’s average target price has increased by nearly $16 across the prior 130 days. Goldman recently reduced its price target for TAL, yet the bank still believes the stock is underpriced and will increase 33% in the year ahead.

TAL appears to be quite overvalued with a forward P/E ratio of 64.71. Making matters worse is the forward P/E is elevated even though TAL is trading within $5 of its 52-week low. In other words, if TAL bounces back, its forward P/E ratio will move even higher.

Yum China Holdings (YUMC - Get Rating)

YUMC is a spinoff from Yum! Brands (YUM). YUMC has United States operations in Texas. This company operates franchised restaurants as well as those owned by the company. YUMC compensates YUM with a license fee that equates to 3 percent of net sales. Examples of YUMC brands include Taco Bell, Pizza Hut, KFC, Little Sheep, and East Dawning.

YUMC has an overall grade of B, which is a Buy rating in the POWR Ratings system. The stock also has Quality Grade of B. Investors who would like to learn more about how YUMC grades out in the Growth, Value, Momentum, Stability, and Sentiment components can find out by clicking here. Of the 70 stocks in the China category, YUMC is ranked third. 

YUMC’s average price target has climbed more than $4.50 across the prior three months. The company has a forward P/E ratio of 33.86 in spite of the fact that it is trading slightly below its 52-week high. 

Which China Stock is Better?

YUMC is the better stock, largely because its POWR Ratings are superior to TAL. YUMC is doing an excellent job of altering YUM! Brands’ menus for the Chinese audience. The company’s digital business has 315 million app users. Add in the fact that China has 1.4 billion people, most of whom are looking for affordable fast food, and there is plenty of reasons to add YUMC to your portfolio.

TAL shares were trading at $39.46 per share on Friday morning, up $0.14 (+0.36%). Year-to-date, TAL has declined -44.82%, versus a 12.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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