Author: ED CARSON
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Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? Among the best are Nio (NIO), Baidu (BIDU), Li Auto (LI), Pinduoduo (PDD) and BYD Co. (BYDDF).
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China is the world’s most-populous nation and the second-largest economy, with a booming urban middle class and amazing entrepreneurial activity. Dozens of Chinese stocks are often among the top performers at any given time, across an array of sectors.
But not right now.
Hong Kong’s Hang Seng Index has tumbled to the lowest levels since April 2009, led by internet and EV stocks.
President Xi Jinping secured a third five-year term and installed more loyalists into top posts. Investors are worried about Xi’s iron grip, and the prospects for further U.S.-China decoupling.
Chinese cities are reimposing restrictions amid a flare-up in Covid cases. China’s “zero-Covid” policy means serious restrictions or shutdowns are always a few cases away.
Best Chinese Stocks Across Many Industries
As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:
- Alibaba (BABA)
- JD.com (JD)
- Pinduoduo (PDD)
- Tencent (TCEHY)
- Vipshop (VIPS)
- Baidu (BIDU)
- Tencent Music Entertainment (TME)
- NetEase (NTES)
- Trip.com (TCOM)
- Dada Nexus (DADA)
- Bilibili (BILI)
- Joy (YY)
- KE Holdings (BEKE)
In electric vehicles, several Chinese companies are serious rivals to Tesla (TSLA) in the world’s biggest auto market.
Several Chinese financial firms or brokerages are listed in the U.S.
Several China stocks are in solar power.
For-profit education Chinese stocks are a notable nontech sector.
- New Oriental Education (EDU)
- TAL Education (TAL)
- Gaotu Techedu (GOTU), formerly known as GSX Techedu.
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
China Stock Investing Via ETFs
One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.
KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S. listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times-leveraged ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times-leveraged ETF shorting Hong Kong’s biggest companies.)
Stock Market Trend Key
As always, investors should be following the overall stock market trend. Right now the market is in a correction.
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Best China Stocks To Buy: Key Ingredients
Focus on the best stocks to buy and watch, not just any Chinese company.
IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.
Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.
Start with companies with strong earnings growth. If they’re not profitable, at least look for rapid revenue growth. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.
Why This IBD Tool Simplifies The Search For Top Stocks
Best Chinese Stocks To Buy Or Watch
| Company | Ticker | Industry Group | Composite Rating |
|---|---|---|---|
| Li Auto | LI | Auto Manufacturers | 14 |
| Baidu | BIDU | Internet-Content | 19 |
| BYD | BYDDF | Auto Manufacturers | n.a. |
| Nio | NIO | Auto Manufacturers | 4 |
| Pinduoduo | PDD | Retail-Internet | 85 |
So let’s analyze these five top China stocks: Li Auto stock, Baidu stock, BYD stock, PDD stock and NIO stock.
Li Auto Stock
Li Auto is one of several Chinese electric-vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).
On Oct. 1, reported September deliveries of 11,531. Li Auto had warned a few days earlier, signaling that September deliveries would be about 10,500.
In its first full month, L9 SUV hybrid deliveries jumped to 10,123. The soon-to-end Li One accounted for the rest. The L8, a scaled-down L9, will begin deliveries in November. Li Auto on Sept. 30 also began presales of another hybrid SUV, the L7.
Li Auto delivered 26,524 hybrid SUVs in Q3, up 5.6% vs. a year earlier but down 7.5% from 28,687 in Q2.
On Sept. 30, Li held an early launch event on Sept. 30 for the L8. Li Auto began preorders for the L7, yet another hybrid SUV that will launch in Q1.
A smaller L6 will be Li Auto’s most affordable vehicle, expanding the market but also facing new competition.
Shares surged to a 52-week high of 41.49 on June 24. LI stock has since broken below its 50-day line and kept falling.
Li stock plunged on Oct. 24 to a two-year low. After bouncing somewhat, Li set a two-year closing low on Oct. 28.
Along with concerns about Li’s model transition, concerns are growing about China EV market demand generally. Also, Shanghai, a key Li Auto market, will end free license plates for plug-in hybrids on Jan. 1.
The automaker has a dual listing on the Hong Kong exchange.
Li Auto stock has a 14 IBD Composite Rating out of a best-possible 99.
Bottom line: Li Auto stock is not a buy.
Baidu Stock
Baidu is China’s top search giant. It also has big ambitions in the autonomous driving space. Earnings fell in 2021 and are expected to decline this year before rebounding in 2023.
Baidu earnings fell about 1% in Q2 vs. a year earlier but beat views. Revenue fell 5%, beating some consensus forecasts but missing others.
On Aug. 8, Baidu said it received approval from Wuhan and Chongqing to charge passengers for its ride-hailing service without a safety driver in designated areas.
Baidu is part of a Jidu joint venture with Volvo parent Geely. They’ll release the highly autonomous Robo-01 SUV next year.
Baidu blasted above its still-falling 50-day and 200-day moving averages on Aug. 25 on the U.S.-China audit deal.
Shares sold off on earnings, plunging below its 50-day and 200-day lines, closing below those levels on Sept. 2. BIDU stock has dived well below the lows of its recent consolidation.
Baidu stock crashed Oct. 24 to a 12-year low.
Bottom line: Baidu stock is not a buy.
BYD Stock
BYD is the biggest Chinese EV maker. It makes EVs, plug-in hybrids as well as electric buses and heavy equipment. It’s also a major EV battery maker.
Notably, BYD is profitable, with growth soaring in 2022 after a subdued 2021 as capital spending surged to power the company’s ongoing expansion.
BYD’s September sales of 201,259 new energy vehicles, the seventh straight month of record sales. That was up 183% vs. a year earlier and 15% vs. August. Of the 200,793 personal vehicles, BYD sold 94,941 pure electric vehicles, or BEVs, and 106,032 plug-in hybrids.
For the third quarter, BYD sold 538,704 EVs and plug-in hybrids, up 194% vs. a year earlier and surging from 355,021 in Q2. The Chinese giant greatly extended its lead over Tesla. Among pure electrics, Tesla leads, but BYD is closing the gap, selling 258,610 BEVs.
On Oct. 28, BYD reported third-quarter net income jumped 350% vs. a year earlier, with revenue up 116%. Adjusted earnings spiked 923%. On Oct. 17, BYD gave a preliminary estimate of net income up 334%-365% and adjusted profit surging 879%-1,015%.
BYD has entered Australia, New Zealand, Singapore and India in the past several weeks, with deliveries starting in Europe and several additional Asian nations in the next few months. The automaker also keeps adding new models, beginning deliveries of the Model 3 rival Seal in late August.
The automaker has conservatively targeted at least 1.5 million in unit sales this year, but appears to be on track to finish well above that.
On Sept. 28, BYD held its European launch event, with deliveries of the Tang SUV, Han sedan and small crossover Atto 3 starting in many countries in the fourth quarter. BYD has been selling the Tang in Norway in limited numbers since late 2021.
On. Oct. 4, BYD announced a deal to sell more than 100,000 EVs to German car rental giant SIXT over six years. That follows Tesla and GM EV deals with Hertz (HTZ). SIXT says it will order several thousand BYD EVs to start, with the Atto 3 available for European customers in the fourth quarter.
The BYD Seal will hit Europe in 2023, the automaker said at the Paris Air Show on Oct. 17. The compact Dolphin also could join BYD’s European lineup.
The EV giant will enter Japan with the Atto 3 in early 2023, the Dolphin/Atto 2 mid-year and Seal/Atto 4 in late 2023.
BYD is increasing its sales in Latin America, ramping up in Brazil in particular.
Exports rose to a fresh high of 7,736 in September vs. 5,092 in August and 4,026 in July. That figure should surge in the next few months.
BYD will build an auto plant in Thailand, with production set to begin in 2024. BYD’s first auto plant outside China will be used for export. Thailand and many of BYD’s new markets are right-hand drive countries.
Each of these markets will have specific challenges in terms of regulations and tastes. BYD had to halt Australia deliveries on Oct. 21 for seven days due to a compliance issue over a child safety seat anchor location.
The China EV giant will unveil a high-end brand soon. The brand will target the luxury market for 1 million ($145,520) yuan or more, starting with an off-road SUV.
BYD’s 90%-owned Danza unit has just launched a minivan in the affordable luxury space, with deliveries likely starting in a few days. A Danza SUV is expected to be unveiled soon. Mercedes-Benz owns 10% of Danza.
BYD has begun supplying Blade batteries to Tesla Berlin. The Tesla deal is a major validation for BYD as a battery supplier to third-party automakers.
Toyota (TM) will use BYD batteries and motors in an upcoming small EV for the Chinese market, the bZ3. BYD may be actively involved in Toyota’s wider EV push in the coming years.
BYD stock has struggled ever since rumors arose in July that Warren Buffett’s Berkshire Hathaway (BRKB) was selling some or all of its stake.
A Hong Kong exchange filing on Aug. 30 showed that Berkshire in fact sold 1.33 million H-shares on Aug. 24. On Sept. 1, Berkshire sold 1.72 million shares. Berkshire bought 225 million H-shares in BYD in September 2008. Berkshire owns slightly less than 8% of BYD, based on all share classes.
BYD stock plunged 19% for the week on the Buffett sales. Shares kept falling into late September.
BYDDF has rallied modestly on strong deliveries and other positive news, but crashed in late October to match a 52-week low.
BYD is listed in Hong Kong and trades over the counter in the U.S. The BYDDF stock chart is prone to lots of little gaps up and down.
Cathie Wood’s Ark Invest has a small stake in BYD.
Bottom line: BYD stock is not a buy.
Tesla Vs. BYD: China Rival Seizing EV Crown
Pinduoduo Stock
Pinduoduo is the No. 3 e-commerce player in China, after Alibaba and JD.com. Pinduoduo plans to open up some U.S. e-commerce operations.
Pinduoduo earnings crushed views before the open on Aug. 29. Adjusted EPS leapt 156% vs. a year earlier to $1.13, beating by 73 cents. Revenue rose 36% to $4.69 billion, more than $1 billion above consensus.
Alibaba and JD.com are having a tougher time in a struggling economy. But Pinduoduo’s bargain-focused operations have gained in popularity.
Meanwhile, Pinduoduo has launched its global online marketplace Temu in the U.S.
PDD stock skyrocketed Aug. 29 on earnings, briefly breaking out. Shares traded in or near the buy zone for weeks before falling back.
A strong move above the 21-day line and a short trendline offered an early entry Oct. 4, but PDD stock has fallen back. Shares rebounded from their 200-day line on Oct. 17, but then crashed Oct. 24.
PDD stock moved back above its 200-day on Oct. 26, then kept rising the next day. Shares held their 200-day line on Oct. 28.
Bottom line: PDD stock is not a buy.
Nio Stock
While not as large as the diversified, profitable BYD, Nio is the most established of the Chinese EV startups. Nio now has six electric vehicles, the ES8, the ES6, the crossover EC6, the luxury ET7 sedan and now the ES7 SUV and ET5 sedan.
Nio delivered 10,878 vehicles, up 2.35% vs. a year earlier and 1.9% vs. 10,677 in August. The includes 3,149 sedans, with 2,928 ET7s and 221 ET5s. The luxury ET7 began deliveries in the spring, while the ET5, a Model 3 rival, just began deliveries on Sept. 30. Along with the ES7 SUV, Nio has released three all-new EV models in 2022.
In addition to its three new EVs, Nio plans to upgrade its pre-2022 models, the ES8, ES6 and EC6.
Nio expects production to ramp up in Q4, with record deliveries every month in the quarter.
Down the road, Nio has plans to introduce a cheaper sub-brand, and possibly an even-cheaper third brand.
Nio is embarking on a big capacity expansion, and has major international ambitions.
Nio adopting a leasing-only model in Europe initially with ET7 deliveries in Germany, the Netherlands, Sweden and Denmark. It’ll offer outright sales starting Nov. 21.
Shares peaked at 66.99 in January 2021, but has struggled since.
Nio stock surged to touch its 200-day line in September. Shares have since plunged to two-year lows, tumbling on Oct. 24. Nio recouped most of those losses in the next two sessions, but fell on Oct. 27 and is set to tumble Oct. 28.
Bottom line: Nio stock is not a buy.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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