3 Chinese tech stocks to buy right now
There are plenty of reasons to avoid Chinese stocks right now: China’s economy remains sluggish, the trade war is unresolved, and a bill recently passed by the Senate could exclude Chinese companies from U.S. stock exchanges if they do. do not comply with more stringent regulations.
However, many Chinese tech stocks have rallied again this year, with investors apparently rejecting these threats and focused on their growth. Three of these actions – Tencent (OTC: TCEHY), JD.com (NASDAQ: JD), and Baozun (NASDAQ: BZUN) – could still have plenty of room to run.
Tencent owns WeChat, the best mobile messaging app in China. It also owns the world’s largest video game company, China’s second-largest cloud infrastructure platform, one of the largest in the country. digital payment networks and several leading media delivery platforms.
Last year, Tencent’s revenue grew 21% while its adjusted profit rose 22%. In the first half of 2020, its revenue increased 28% year-over-year while its adjusted profit increased 29%.
Tencent’s business has grown throughout the COVID-19 crisis, as home support measures have increased its mobile gaming revenue, increased ad purchases from businesses focused on the pandemic (including e-commerce, online education and game companies) increased its advertising revenue and its cloud platform benefited from the high usage of cloud-based services.
Tencent also continues to expand WeChat’s mini-program ecosystem, which allows users to make payments, order food, purchase products, play games, do hail races. and much more without ever leaving the app. The Trump administration recently threatened to ban WeChat in the United States, but the symbolic move probably won’t affect Chinese core business of the application. Tencent also continues to expand its investment portfolio at home and abroad.
Analysts expect Tencent’s revenue to grow 30% this year and profit to rise 32%. Tencent’s stock may not look cheap at nearly 40 times earnings eventually, but its diverse business model, wide moat, and robust growth rates easily justify the higher price tag.
JD is the largest direct retailer in China and the second largest e-commerce company after Ali Baba (NYSE: BABA). Unlike Alibaba, which does not take stocks in its main market places, JD takes stocks and processes its orders with its own warehouses and logistics network.
JD’s revenue grew 25% last year as its adjusted profit more than tripled. JD attributed this profit growth to the expansion of its premier logistics network and growth as a stand-alone company serving other businesses. This stable profit growth has allowed JD to expand its ecosystem with a new cloud platform and JD Health, which offers telehealth and online pharmacy services.
In the first half of 2020, JD’s revenue grew 28% year-over-year while its adjusted profit grew 21%. Its sales remained strong throughout the crisis, and its annual growth in active customers has accelerated considerably because it attracted more buyers from lower level Chinese cities. Its annual 618 Shopping party in June also strongly boosted sales in the second quarter.
Wall Street expects JD’s revenue and profits to grow 30% and 52%, respectively, this year. JD’s shares are trading at over 50 times earnings eventually, but that valuation is actually quite reasonable compared to his sky-high growth rates.
Baozun helps businesses digitize their retail operations in China quickly. It provides digital storefronts, marketing campaigns, fulfillment services, IT services, customer service tools and other services. He mainly helps large multinational brands to gain a foothold in China.
Baozun previously helped traders fulfill orders with a capital-intensive “distribution” model. But in recent years, it has shifted to a higher margin “non-distribution” model in which retailers fulfill their own orders. This change, along with the prioritization of higher margin brands, has allowed Baozun to remain consistently profitable.
Baozun’s revenue grew 35% last year, while its adjusted profit rose 3%. In the first half of 2020, its revenue increased 23% year-over-year while its adjusted profit increased by 26%. He attributed its strong growth to strong e-commerce sales throughout the crisis and high order volume at the 618 Shopping Festival in the second quarter. Its gross margin, operating margin, and take-up rate (the reduction in each sale it takes as revenue) all increased year over year in the first half of the year. .
Baozun recently scared the bulls warning that its growth in GMV (gross merchandise volume) would slow in the third quarter, mainly due to seasonal headwinds and a strategic decision to move away from low-margin electronics brands. Nonetheless, analysts still expect Baozun’s revenue and profits to grow by 26% and 57%, respectively, for the full year, which represents high growth rates for a stock that is trading at a low. little more than 30 times the profits over time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.