Chinese stocks, especially in technology and tech-esque industries, have been hammered over the past year as stringent COVID lockdowns hampered manufacturing and, overall, dampened the economic outlook.
Even as China reopened its economy late last year, the economic recovery is taking longer than expected. Chinese retail sales soared 18.4% year-over-year in April, though this fell short of economists' estimate. While there was notable weakness in the sales of big-ticket items like furniture and home appliances, there were large month-over-month increases in sales of food services and apparel. Online retail sales were up 31.2%.
"The weaker-than-expected activity data in April indicate China's current recovery failed to pick up steam after the initial boost from pent-up demand receded," says BofA Securities analyst Miao Ouyang. Still, the analyst believes growth will pick up later this year.
So the bottom line is that the Chinese economy is expected to bounce back. A combination of dirt-cheap valuations and recovering business prospects has many pros looking at China as a source of potential, even if only for short bursts at a time.
How we chose the best Chinese stocks to buy
Investing in Chinese stocks is not for the faint of heart. There is plenty of risk in the region. But nimble investors looking to take a swing on the best stocks to buy can improve their chances by listening to what the pros have to say.
We've used the TipRanks database to look for Chinese shares with tech- and tech-esque businesses that have earned Strong Buy ratings from analysts. Additionally, each of the names featured here offers major upside potential based on their consensus price targets.
With that in mind, here are the five best Chinese stocks to consider.
Data is as of May 17.
Alibaba Group Holding
- Market value: $234.6 billion
- TipRanks consensus price target: $149.00 (64.3% upside potential)
- TipRanks consensus rating: Strong Buy
Alibaba Group Holding (BABA, $90.68) soared in late March after the Chinese tech and e-commerce giant made some significant announcements, including a major reorganization and news that it's rolling out ChatGPT-style chatbots. Specifically, Alibaba said it will split into six business groups, with five of the groups having the ability to undergo an initial public offering (IPO) and raise funding from outside. The Taobao Tmall Commerce Group will remain wholly owned by BABA.
The other five groups include Cloud Intelligence, Local Services, Cainiao Smart Logistics, Global Digital Commerce, and Digital Media and Entertainment. Each of these six business segments will have their own CEO and board of directors. This restructuring was done to unlock shareholder value and to "foster market competitiveness," according to Alibaba.
Of BABA's new groups, its Cloud Intelligence Group will be the first to go public, the company said following its fiscal fourth-quarter earnings report. While the size and terms of the upcoming IPO have yet to be decided, the spinoff is expected to occur within the next 12 months.
Alibaba has also jumped into the race for ChatGPT-style chatbots. The company launched Tongyi Qianwen, a vast language model, in late April. The service is integrated into its Tmall Genie smart speakers and DingTalk messaging platform, with plans to eventually incorporate it into all BABA applications. Other Chinese companies, including Baidu (BIDU) and JD.com (JD), are also exploring ChatGPT technology.
Overall, Wall Street analysts approve of BABA's restructuring and give this Chinese stock a Strong Buy consensus rating based on 17 unanimous Buys.
Morgan Stanley analyst Gary Yu points out that the reorganization is a "positive catalyst" and that this could unlock "significant" sum-of-the-parts value. According to Yu, the stock market currently assigns zero value to the company's other businesses besides e-commerce. The analyst's sum-of-the-parts valuation in an upside scenario assigns a value of $200 per share to BABA, implying a "100%-plus upside."
Yu has a Buy rating and a price target of $150 on the stock, implying an upside potential of 65% at current levels. Hear what else the pros have to say about BABA on TipRanks.
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JD.com
- Market value: $58.5 billion
- TipRanks consensus price target: $62.18 (66.5% upside potential)
- TipRanks consensus rating: Strong Buy
E-commerce giant JD.com (JD, $37.34) is also planning to spin off its property and industrial units, similar to its competitor Alibaba. According to Reuters, these two business units could be worth $1 billion and could be listed on the Hong Kong Stock Exchange. JD.com would continue to have a 50% stake in each of these businesses, even after the proposed spinoff.
Shares of JD.com have declined by more than 30% year-to-date on headwinds sparked by China's stringent COVID-19 lockdowns. These restrictions were relaxed only late last year.
The effect of the strict lockdown did have an effect on JD.com's Q4 financial results, as its revenue growth rate slumped to 7.1% year-over-year – compared to a growth rate of 23% in the same period a year ago.
However, the company's first-quarter results hinted at stabilization, with revenue rising 1.4% year-over-year.
"We believe the setup is positive into the rest of the year with continued revenue recovery and favorable margin leverage with marketplace business outperforming," says Mizuho Securities analyst James Lee. The analyst has a Buy rating on JD, and classifies it as a "top internet pick." Lee's $70 price target represents implied upside of roughly 86% to current levels.
Plenty of other analysts believe JD.com is one of the best Chinese stocks too. JD has a Strong Buy consensus rating at TipRanks, based on 13 Buys and four Holds. See the full rundown of analyst ratings for JD.com on TipRanks.
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NetEase
- Market value: $56.9 billion
- TipRanks consensus price target: $116.50 (32.1% upside potential)
- TipRanks consensus rating: Strong Buy
NetEase (NTES, $88.17), a Chinese PC and mobile games developer, has seen its share price rise by nearly 8% year-to-date, even as its fourth-quarter results missed estimates. The company generated net revenue of $3.7 billion, up by 4% year-over-year, but missed analysts' expectations of $3.68 billion. Fourth-quarter earnings came in at $1.08 per American depositary share (ADS), but fell short of analysts' consensus estimate of $1.18 per share.
Even with the disappointing results, J.P. Morgan analyst Daniel Chen is upbeat about the communication services stock, upgrading it to Buy from Hold in March. Chen sees NetEase benefitting from a new game launch cycle in March. The analyst also raised the price target to $100 from $85, implying an upside potential of 14.4% at current levels.
The analyst pointed out that NetEase is expected to launch another nine to 10 games this year, with two of them likely to be introduced in international markets. Chen added that the new game launch cycle has turned more positive with the successful launch of Eggy Party, which has reached 30 million daily active users (DAUs) after an initial May 2022 release.
Chen expects NetEase's revenues to grow in the range of 8% to 9% year-over-year in the second and third quarters.
NTES is another one of the Strong Buy-rated Chinese stocks featured here, thanks to four unanimous Buys among analysts who have released notes on the stock over the past three months. Check out other analysts' price targets and analysis for NTES at TipRanks.
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Baidu
- Market value: $45.6 billion
- TipRanks consensus price target: $191.46 (46.7% upside potential)
- TipRanks consensus rating: Strong Buy
Internet-related services provider Baidu (BIDU, $130.52) is up more than 14% for the year-to-date, boosted in part by its foray into AI. BIDU's ChatGPT-style Ernie Bot integrates artificial intelligence with Baidu's cloud services. In late March, the company cancelled an event that aimed to showcase its Ernie Bot, stating it would instead hold a "closed-door communications meeting" with its potential corporate users. A South China Morning Post report stated that it cancelled the event in order to "help clients make better use of the Ernie Bot cloud services."
So far, Baidu's Ernie Bot has been available in a modified beta test to a few individual customers, but that has not been without glitches. The company is now waiting for government approval. Once it's received, "we'll roll it out at a large scale to our customers and users," Robin Li, CEO of Baidu, said in the first-quarter earnings call.
But it's not all Ernie Bot at Baidu. The company has also recently received its first license in China to provide a fully driverless ride-hailing service.
Even as competition intensifies in China when it comes to ChatGPT, research firm Daiwa Capital Markets remains positive about Baidu. Analysts have a Buy rating on BIDU, and recently raised their price target to $215 from $200.
Daiwa is positive about the stock after testing out its Ernie Bot for two weeks and comparing it with both GPT-4 and ChatGPT. The firm came to the conclusion that while the Ernie Bot ranks below GPT-4, it is still as good as ChatGPT and generates better Chinese language output than the other two bots. "This performance is encouraging and exceeded our expectations," Daiwa concluded.
BIDU is another one of the Chinese stocks that Street is bullish toward, with 14 Buys, one Hold and one Sell each among the analysts that have sounded off over the past three months. TipRanks offers up a full analyst rundown of BIDU shares here.
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Li Auto
- Market value: $28.2 billion
- TipRanks consensus price target: $38.54 (33.6% upside potential)
- TipRanks consensus rating: Strong Buy
Li Auto (LI, $28.85) is a surprise entry to this list of the best Chinese stocks. The Beijing-based electric vehicle (EV) maker is up more than 41% year-to-date, backed by strong delivery numbers in the first quarter.
The EV industry in China has been witness to some intense price wars to boost demand as rising competition and a slowing macroeconomic environment are intensifying pressure on major players in the space like Tesla (TSLA).
Still, Li has left investors impressed with its calendar Q1 vehicle delivery numbers. In March, the company delivered[ 20,823 vehicles, an increase of 88.7% year-over-year. Its Q1 deliveries soared by 65.8% to 52,584. At the end of March, Li Auto had cumulative deliveries of 309,918 vehicles.
The increasing competition has not prevented Morgan Stanley analyst Tim Hsiao from shying away from a Buy rating and $40 price target on LI stock. Hsiao's price target is in the middle of the pack, with the analyst concerned that Tesla's price cuts in China and weaker year-to-date sales are likely to put under pressure first-half sales and margins for China's EV players.
As a result, Hsiao recently slashed its earnings forecasts and adjusted price targets for the Chinese trio of EV majors, including Li, Nio (NIO) and Xpeng (XPEV). However, Hsiao remains optimistic toward these companies on the basis of the strength of their balance sheets and the speed of their innovation.
Most analysts are bullish on LI stock, with seven of eight giving shares a Buy rating. Hear what else the pros have to say about LI on TipRanks.
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