Amidst multiple years of market losses in China, geopolitical tensions, and a prolonged property crisis, some U.S. asset managers remain undeterred, seeing potential in Chinese stocks. Furthermore, several heavyweight Chinese U.S. listed stocks might have bottomed out recently, providing a potentially excellent risk: reward opportunity.
Despite significant outflows and a steep decline in the CSI 300 Index, recent support measures from Beijing suggest a potential turnaround. As China's markets reopened post-Lunar New Year, they showed signs of stabilization after hitting lows earlier in the year. The current valuations present an enticing proposition for investors, with China's CSI 300 index trading at half the valuation of the S&P 500 index. Jonathan Krane, CEO of China-focused ETF provider KraneShares, believes this presents a unique opportunity, labeling it as potentially a "once-in-a-lifetime" chance to invest in Chinese equities.
With this backdrop, it's worth exploring whether stocks like JD, BABA, and BIDU have been oversold, given the prevailing economic challenges in China, and if they now offer an attractive risk-reward scenario.
Let's delve into each stock to assess their potential for a turnaround and whether they're approaching value territory or confirmed a bottom.
Alibaba (NYSE: BABA)
Alibaba is a prominent eCommerce and Internet technology giant. Its primary platform, Alibaba.com, ranks as the world's third-largest eCommerce platform by sales. Alibaba offers infrastructure and marketing support for merchants of all sizes, facilitating brand development and customer connections in China and internationally.
Over the previous year, shares of BABA have fallen close to 15% and nearly 75% from its high in 2020. More recently, however, the stock is close to flat year-to-date and appears to have confirmed a short-term bottom near $70 after the stock attempted to break down multiple times and came into support. From a valuation perspective, BABA trades with a P/E of 14 and offers a dividend yield of 1.29%, making it an attractive proposition for value investors. Analysts are forecasting a significant upside for the eCommerce giant, with a price target of $115.44, almost 52% higher than current prices. The stock has a moderate buy rating based on sixteen analyst ratings.
Baidu (NASDAQ: BIDU)
Baidu focuses on internet-related services and artificial intelligence. It offers various products and services, including the widely-used Baidu Search, China's leading search engine. The company has expanded into cloud services, providing storage, data analysis, and AI services through Baidu Cloud.
Very similar to BABA, shares of BIDU are down close to 15% over the previous year and just over 6% year-to-date. However, after briefly trading below $100 at the beginning of the year, the stock has since renounced and confirmed a higher low, potentially marking the bottom of its downtrend. BIDU offers shareholders no dividend but the stock is trading at a low P/E of 12.74 and has projected earnings growth of 18.99%. Notably, the stock has a buy rating based on sixteen analyst ratings and a price target forecasting an almost 60% upside.
JD.com (NASDAQ: JD)
JD.com is a prominent Chinese eCommerce company founded in 1998 by Qiangdong Liu. Initially starting as an online magneto-optical store, JD.com has evolved into one of China's largest B2C online retailers, offering various products, including electronics, mobile phones, computers, and more. Operating through multiple segments like JD Retail, JD Logistics, and JD Technology, the company is known for its authentic products, competitive pricing, and customer-centric approach.
The online retailer's shares have taken a hit recently, declining by almost 50% over the previous year and down over 17% year-to-date. The significant declines, however, have now resulted in a potential opportunity for investors seeking deep value. JD offers a 2.51% dividend yield with a low P/E of 11.33. While the stock is consolidating in the low end of its 52-week range, it is now trading near resistance to short-term consolidation. A move above $24 might confirm a momentum shift and mark the low from earlier in the year as its bottom. Like BABA, analysts have rated JD as a moderate buy, forecasting an impressive 75% upside based on the consensus price target of $42.