June 21, 2022

3 Chinese Stocks to Consider as the U.S. Market Declines

With the U.S. stock market as tight as it is, it’s probably best to look elsewhere. Tactical allocations are always a good option whenever there isn’t much to choose from.

Chinese stocks can be a great option at the moment, as they’re largely oversold and operate in one of the few economies with subdued inflation. Moreover, Chinese stocks provide diversification benefits to U.S.-centric stock portfolios.

I utilized TipRanks’ stock screener to find three Chinese stocks that I’m bullish on and decided to expand upon their key metrics in this article.

Bilibili (BILI)

Bilibili is a significantly oversold asset at the moment. The stock has drawn down by more than 40% since the turn of the year, as Chinese stocks have faced significant geopolitical headwinds.

Nonetheless, there’s hope for Bilibili, as it’s a unique stock. Firstly, the company’s effort to appeal to a new consumer base has been successful. 86% of Bilibili’s user base is Gen-Z and younger millennials. Thus, the firm’s consumer longevity is of no doubt.

Also, the stock is relatively undervalued, with a price-to-sales discount of 65.7% compared to its five-year average and a price-to-book ratio at a discount of 65.9%.

Turning to Wall Street, Bilibili earns a Moderate Buy consensus rating based on three Buys and six Hold ratings assigned in the past three months. The average BILI stock price target of $32.39 implies a 23.3% upside potential.

Alibaba (BABA)

Alibaba stock is a sleeping giant; there’s no doubting the fact. However, Beijing’s self-induced systemic risk has caused the stock to underperform. Additionally, it’s a leading Chinese asset, meaning that Alibaba’s been under excess beta sensitivity during the recent Chinese bear market. 

However, the tides seem to have changed. Alibaba stock has found a new investor base as market participants seek an alternative habitat amid a U.S. bear market. For instance, while the S&P 500 (SPX) has dipped by more than 6% during the past month, Alibaba has surged by an excess of 16%.

From a non-statistical viewpoint, Alibaba has a commercial profile that would leave many in awe. The company’s model takes advantage of goods arbitrage between the developed nations and global midstream suppliers, which is yet to be challenged.

Furthermore, Alibaba’s local presence is phenomenal, as its array of acquisitions has allowed it to build a vertical and horizontal business model that focuses on speed and efficiency.

Also, the stock is relatively undervalued. Firstly, Alibaba’s price-to-earnings ratio is at a 62.3% discount compared to its five-year average, meaning that the market is yet to price its EPS achievements. Moreover, Alibaba is relatively undervalued on a cash basis, as its price-to-cash-flow ratio is currently 36.6% less than its five-year average.

Turning to Wall Street, Alibaba earns a Strong Buy consensus rating based on 17 Buys and two Hold ratings assigned in the past three months. The average BABA stock price target of $159.84 implies a 56% upside potential.

JD.com (JD)

At an inflation rate of little over 2%, China is one of the few nations that isn’t faced with high price levels at the moment. In addition, the nation’s capacity utilization is showing signs of improvement due to lighter COVID-19 policies.

According to Bank of America (BAC): “The capacity in Shanghai and its nearby region saw its low in April, rebounded to about 80% in the 1st week of May, came down again in the 3rd week of May, and then went back up to over 80% recently.”

Online retail stores such as JD.com could benefit as the Chinese economy enters a cyclical recovery. The company exhibits a market stronghold with a nearly 15% market share. Moreover, JD.com is running an efficient company with an asset turnover ratio of 2.13% and cash from operations of $7.31 billion.

Furthermore, relative valuation metrics indicate that JD stock is undervalued. For example, JD is trading at a discount to its five-year price/sales ratio worth 26% and a normalized price-to-cash-flow ratio discount of 25.6%.

Turning to Wall Street, JD earns a Strong Buy consensus rating based on 10 Buys and two Hold ratings assigned in the past three months. The average JD stock price target of $82.75 implies a 26.7% upside potential.

Concluding Thoughts

Chinese stocks are a tactical play at the moment, as many investors are exiting the U.S. market and seeking new pastures. Additionally, with economic circumstances improving in China, many of the areas listed securities could start performing once more.


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