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China’s economy has been on the minds of nearly every U.S. investor this year.
It’s not just policies out of Washington and the posturing that began in March that could lead to a trade war with Beijing. Nor is it more recent political developments from the Trump administration, including talks with North Korea and other Asian players.
It’s the fact that Chinese stocks continue to present tremendous profit potential — and with U.S. stock markets admittedly challenged since their early 2018 highs, it’s worth considering what this overseas growth engine has to offer.
Of course, many investors may not see a lot of fireworks in China because they are only watching a few big-name ETFs that are seen as broad plays on the nation. Consider the iShares China Large-Cap ETF with $4.5 billion in assets, which is up 2.7% this year through Wednesday compared with the S&P 500 index that’s up just 0.9%. And the SPDR S&P China ETF with over $1 billion assets but a slightly different portfolio mix, has gained 3.6%.
But as the old saying goes, it’s a market of stocks — not just a stock market. And just as a bias toward some of the biggest U.S. growth names over the last year would have delivered outsize returns, a focused on China’s highfliers can potentially unlock amazing outperformance.
Here are 10 names to consider: five big players plus five-lesser known picks that could offer rapid growth.
5 big-name China plays
Though still technically an emerging market, China has many mature large-caps that are as entrenched – and perhaps even in a better position – than some U.S. blue-chip stocks. And since they trade on U.S. exchanges, there’s really no reason every serious investor shouldn’t already be considering whether to invest in these names.
Baidu
Though shares in internet giant Baidu Inc. have been incredibly volatile since last fall, moving regularly between roughly $220 and $270 a share, a massive earnings beat in April has powered the stock once again to the top part of its range, and it seems poised to finally break out to new highs. That’s no surprise, given that huge beat on the profit side — and that the company plans to sell a stake in its financial-services business to both focus its operations and unlock a bunch of capital.
Shares are up 13% in a just a few weeks since that report, and rapidly approaching a new high.
Alibaba
Alibaba Group Holding was the talk of the market in 2017, as the stock roughly doubled on the year thanks to strong growth metrics. Shares haven’t exactly broken out to a new high in recent months — they are struggling to break through $200 — but the e-commerce company’s growth is still going strong.
In fact, its May earnings report showed a nice beat for its fiscal fourth-quarter results, with adjusted net income up 37% and revenue up an impressive 61% year-over-year. Of particular note was the fact that its cloud computing business revenue doubled over the prior period. This may be just the news Alibaba needs to break out to a new 52-week high.
Sinopec
China Petroleum & Chemical Corporation colloquially known as Sinopec, is one of the biggest energy companies on the planet. And with a share-price run of about 50% from its December lows, it is also one of the best-performing stocks in the space lately.
Sure, that’s in part because oil has firmed up and it’s up against easier comps, but compared with U.S. oil giants like Exxon Mobil and Chevron that have struggled mightily since their February highs, Sinopec looks incredibly attractive both because of its fundamentals and its momentum.
Weibo Corp. a digital company spun out of media giant SINA Corp. is often referred to as the “Twitter of China.” But that doesn’t do Weibo justice, since the company has always run a very profitable operation and is seeing sustained growth, whereas Twitter Inc. has struggled with both of those items.
Last year, Weibo users surpassed Twitter’s audience. And consider that earnings per share for this fiscal year are expected to hit $2.80 for 55% year-over-year growth, and then surge to $4.00 according to FY2019 projections. If you ever believed in the hope and hype behind Twitter, look at Weibo — where the growth is actually real.
China Telecom
China Telecom Corp. isn’t quite as dynamic as some of the other large-caps on this list. However, with more than 250 million wireless subscribers in this increasingly connected region, it’s hard to ignore — particularly after fiscal 2017 results posted in March that featured stronger-than-expected profits.
Sure, the dividend is only paid once annually and the yield is just short of 3% at current pricing, while U.S. telecoms are roughly double that. But the stability and growth of this powerhouse can’t be ignored.
5 lesser-known China stocks
These five large-cap stocks aren’t the only high-potential investments in China, however. These five unsung stocks could be interesting to investors who either already own a stake in the aforementioned giants, or who simply want to be more aggressive and get in on the ground floor of tomorrow’s leaders.
Autohome
If you haven’t heard of online car portal Autohome Inc. you’re missing out on one of the biggest growth stories of the last year. Just as U.S. platform Carvana has exploded as it takes the car-shopping experience into a digital age, with its stock up over 100% in the last 12 months, so has this similar China company. Autohome shares are up nearly 170% in the last year, marching higher in a nearly straight line. The company beat profit expectations in its earnings report this week, and with the China market still robust even as the U.S. faces slowing auto sales, this is a stock to watch.
Melco
Casino operator Melco Resorts & Entertainment is a big player in the gambling destination of Macau. Gaming is a huge cultural force in China, and with consumer spending in the region on the rise, it’s no surprise that Melco continues to cash in. Shares are up more than 40% in the last 12 months, in part because of strong numbers in its earnings report last week that showed robust gross gaming revenue as well as another profit beat.
As Chinese consumers remain eager to open their wallets, Melco should continue to outperform.
58.com
58.com Inc. is an online classified-ads leader in China, often compared to domestic portal Craigslist. This is another name that was red hot in 2017 as it finally achieved consistent profitability; its stock more than doubled in that time. It remains red hot in 2018, thanks to continued success. Earnings per share not only remain positive, but analysts are expecting 35% profit growth this year and more than 40% growth next fiscal year. Shares are up 15% year to date as a result.
New Oriental
New Oriental Education & Technology Group offers private educational services like test prep, online courses and even preschooling. The stock can be a bit volatile, but the long-term trend is definitely higher with almost 40% gains in the last 12 months. That’s in part because of a strong growth outlook, including its late-April earnings report that showed a 41% jump in revenue from a year ago and adjusted operating income growth of 23%. Consistent double-digit earnings growth shows the power of China’s emerging for-profit education sector as the nation continues to focus on initiatives to make its workers globally competitive in the 21st century.
Vipshop
Unlike some others on this list, Chinese e-commerce play Vipshop Holdings hasn’t reported its earnings yet. But when those numbers drop on Tuesday, you can expect some fireworks — particularly given the big full-year report in February that featured a 29% jump in annual revenue thanks to a 24% growth rate in total orders, reaching nearly 58 million customers.
This isn’t quite a business on the scale of Amazon.com but investors clearly like what they see given that the stock is up more than 35% year-to-date in 2018 and has roughly doubled from its lows late last year.