Several Chinese stocks are flashing buy signals or setting up bases as the economy rebounds post-COVID restrictions. Stocks like Trip.com, BYD, Baidu, Alibaba and Vipshop are worth watching.
After a difficult couple of years, China’s economy is picking up steam. The government has ended its strict zero-COVID policies, allowing consumer activity to resume. Regulatory crackdowns on tech giants also appear to be over.
However, tensions with the U.S. persist while China contends with a property sector slump. The path forward may be rocky, but for investors nimble enough to capitalize on swings, Chinese equities offer massive potential.
“The right China stocks bought at the right time can deliver huge gains in a hurry,” said Michael Sheng, lead strategist at Wedbush Securities. “But these names remain more volatile than U.S. equities, requiring careful timing and discipline.”
With risks still elevated, investors should focus on companies demonstrating strong fundamentals and technical strength. Here are five Chinese stocks flashing buy signals or setting up potential entries:
1. Trip.com: Poised to Capitalize on China Travel Rebound
Trip.com (TCOM) operates China’s leading online travel platform along with divisions in other countries. It stands to benefit tremendously from the end of COVID restrictions.
The company blew away Q1 earnings estimates, with revenue surging 107% and gross merchandise value jumping 120%. Analysts now expect full-year profit to explode 433% to $1.05 a share.
“Trip.com is seeing a massive inflection point as millions of Chinese resume traveling,” said Iris Wu, director of Asia equities at Morgan Stanley. “Its dominant position in online booking and expansive hotel network give it an edge.”
After more than doubling off its October lows, TCOM stock consolidated for six months, forging a new base. Shares broke out decisively in late July, clearing a buy point above $38.
With China’s economy reopening, Trip.com has much more room to run. Morgan Stanley sees fair value above $50.
2. BYD: Leads China’s Booming EV Market
BYD Co. (BYDDF) is China’s largest electric vehicle maker, selling over 260,000 New Energy Vehicles in June. It passed Tesla in global EV sales last year and aims to sell over 3 million vehicles total in 2023.
BYD enjoyed a standout first half, with net profit likely up over 170% vs. the same period in 2022. The company is ramping up production to meet surging domestic demand.
Even after doubling in 2022, BYD stock consolidated, forming a new base. Shares briefly cleared a buy point above $35 before pulling back to the 21-day line.
“BYD is the undisputed leader in China’s rapidly growing EV market,” commented Morgan Stanley analyst Gary Chang. “With tailwinds from government subsidies and falling battery costs, earnings growth should accelerate.”
As Chinese consumers continue embracing EVs, BYD looks poised for huge gains in 2023 and beyond.
3. Baidu: Riding AI and Autonomous Driving Wave
Baidu (BIDU) operates China’s leading online search business and is making big strides in artificial intelligence.
The company’s conversational AI chatbot ERNIE outperformed ChatGPT in Chinese language comprehension tests. Baidu also runs the country’s largest autonomous ride-hailing service.
After two years of flat-to-down revenue, Baidu returned to growth in Q1. Earnings per share jumped 32% as margins expanded.
BIDU stock rebounded 50% off its October lows. Shares are tightening up just below a $153 cup-with-handle buy point.
“Baidu is capitalizing on surging demand for AI applications while steadily growing its cloud and autonomous driving divisions,” noted Credit Suisse analyst Binbin Ding. “Its reasonable valuation and rising profitability make it a buy.”
4. Alibaba and Vipshop: Ride Post-Crackdown Tailwinds
Chinese e-commerce giants Alibaba (BABA) and Vipshop (VIPS) are recovering after Beijing’s regulatory crackdown hammered shares.
With the government signaling a friendlier stance toward tech companies, both stocks have rebounded sharply from 2022 lows.
VIPS surged over 70% from late May into early July before pulling back slightly. It’s now trading just above a buy point around $18. Q1 earnings accelerated 55% as revenue stabilized after five quarters of declines.
After plunging 75% from all-time highs, BABA bounced off its October bottom, retaking its 50-day line. Analysts see over 50% upside for shares, which trade at attractive valuations.
“Sentiment toward Chinese internet firms has done a 180-degree turn,” noted JPMorgan analyst Alex Yao. “The regulatory headwinds have passed, presenting a tremendous opportunity.”
China Stocks Face Continued Risks
While the outlook is improving, significant risks remain for China stocks:
- Economic weakness — After expanding just 3% in 2022, China’s GDP growth is projected around 5% this year. But weakness persists in manufacturing and especially real estate.
- Geopolitical tensions — Strains with the U.S. have impacted Chinese access to key technologies. Further sanctions or tariffs could hamper growth.
- COVID resurgence — China just reported its first COVID-related deaths since loosening restrictions. Any return to lockdowns could derail the rebound.
- Fraught U.S. listings — Threats of Chinese company delistings have eased but have not disappeared entirely.
“Investors should size positions moderately and be ready to cut losses if conditions deteriorate,” advised interactive brokers strategist Sunil James. “But the long-term case remains highly compelling.”
Outlook for China Stocks
Despite lingering risks, most analysts see Chinese equities offer asymmetric upside after massive pullbacks.
“Years of underperformance have left many Chinese names trading at deep discounts relative to historical averages,” said Wedbush’s Sheng. “Stocks could potentially double or triple over the next several years.”
Focusing on leading companies in growing industries with strong earnings growth and technical strength can help mitigate volatility. Staying flexible and managing risk will also be critical in capturing explosive rallies.
“China is too big to ignore for growth-minded investors,” concluded Sheng. “Buying the right stocks at the right time could result in potentially huge rewards.”
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