Chinese stocks have been some of the most battered in the entire world. However, things are finally turning around for the Chinese economy and the stock market as well. The storm clouds looming over the Chinese market seem to dissipate, and a new dawn could be on the horizon.
The Chinese government has taken steps to prop up stocks in the past few months, and I believe if the Chinese stock market starts to falter again, they will loosen policy even more, considering China has minimal inflation. With the world’s largest foreign exchange reserve at $3.2 trillion, China has the ammunition to stabilize its currency if it decides to induce more quantitative easing. This financial firepower could prove to be a game-changer for the Chinese market.
Given the potential for a turnaround, buying up some promising Chinese stocks for cheap before they fully rebound like many Western stocks did after the 2022 downturn makes sense. Here are three Chinese stocks to look into:
Alibaba (BABA)
Alibaba (NYSE:BABA) has sadly disappointed again this earnings season. It beat revenue estimates by nearly 1% but missed EPS estimates. It earned 10.14 renminbi vs. 10.71 expected per ADS, which led to the stock slumping by 6%. However, this miss does not bother me about the company’s long-term outlook. It is much more than just e-commerce nowadays.
With a stunning 45% surge in international commerce revenue and triple-digit increases in AI-related sales, it’s obvious that Alibaba’s strategic adjustments are paying off. The company slashing cloud prices to ignite growth might have been one of the main culprits behind the missed earnings, but I think growth is what Alibaba needs right now. It trades at 15 times trailing earnings and has a 1.26% dividend yield. Profits are not a problem here and should grow in the long run if the top line does.
However, the real showstopper is the strong double-digit growth in GMV for Taobao and Tmall. They’ve rebuilt consumer trust and frequency of purchases. This bodes well for their fiscal 2025 targets, where monetization aligned with platform improvements should further advance revenue gains.
Baidu (BIDU)
Baidu’s (NASDAQ:BIDU) Q1 earnings are due on Thursday, so it is impossible to judge near-term moves. However, the long-term here is definitely positive. In Q4 2023, revenue growth remained modest at 1.16% year-over-year.
That said, the monetization of Baidu’s ERNIE model is rapidly gaining traction. In Q4 alone, the company generated “several hundred million RMB” from ERNIE-powered ad tech improvements and enterprise model building.
This incremental ERNIE revenue stream could swell into the billions in 2024. Fueled by advertising and cloud AI services, leadership’s guidance aligns with Baidu’s desire to make ERNIE a foundational system that enables an ecosystem of third-party AI applications.
I do not think China will use OpenAI or Western AI models anytime soon. This is an up-and-coming AI company with a massive captive user base it can dominate in the coming years—dirt cheap at 14 times earnings. EPS is expected to rise significantly in the future.
Meituan (MPNGF)
Meituan’s (OTCMKTS:MPNGY, OTCMKTS:MPNGF) earnings for this season will also be released about a week from now. You may know Alibaba and Baidu, but Meituan is only well-known in China. This is a shopping platform for locally found consumer products and retail services.
Its most recent business updates showed that food orders surged almost 24% YOY, and shopping orders through the Meituan Instashopping service rose over 40%.
However, I wouldn’t overlook the significant 30% growth in customers who used their services frequently across all platform parts. This large group of loyal users who order often and spend good money could really drive continuous expansion.
To be sure, the stock isn’t cheap compared to other Chinese stocks. However, the higher price reflects reasonable expectations for a business modernizing convenient shopping so aggressively.
Earnings should expand much more from their 2023 metrics in the coming years.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.