Are Chinese Tech Stocks Still Worth Investing In?
Some of China’s most valuable U.S.-listed tech stocks are pushing ahead with multibillion-dollar share sales in Hong Kong. This came after growing pressure from U.S. lawmakers for greater financial scrutiny on Chinese companies. This looming threat makes it harder for investors to stay invested in Chinese stocks in this volatile market.
The new bill targeting Chinese companies sent some of the Chinese tech stocks sliding. Luckin Coffee’s (LK Stock Report) accounting scandal also came at an inopportune time. I don’t blame investors for being skeptical about China-based companies. But we must remember that Enron and WorldCom have made similar mistakes too. Point being, we should not avoid all companies from one country just because of a bad apple.
China, which was once the epicenter of the coronavirus outbreak, is slowly limping back to normalcy. While the Chinese economy will take some time to stage a complete turnaround, buying American Depository Receipts of Chinese companies seems like a good proposition currently. Also, the new U.S. Senate bill is not going to have any material impact on the daily business operations across the Pacific. With that in mind, are these the best tech stocks to buy right now amid the U.S.-China tensions?
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Could Alibaba Stock Be Attractive Again?
After Alibaba (BABA Stock Report) reported stellar revenues last week, the stock headed in the opposite direction of what investors and analysts would expect. That’s understandable. The trade war, Covid-19 and a potential delisting have all weighed down on the stock in recent weeks. But, let’s get back to the fundamentals. BABA stock was trading at around $230 before the country went into full lockdown amid the pandemic. From the market crash in March, BABA stocks traded at a low of $176 per share before bouncing back to above $200 mark today.
The recent quarter showed that Alibaba generated 82% of its revenue from its core commerce business, ranging from e-commerce marketplaces, its brick-and-mortar stores and its stake in Cainiao logistics. The growing popularity of its Tmall and Taobao platforms could see Alibaba outpace the country’s e-commerce growth. One more positive note is on Cainiao, which has returned its operations to pre-pandemic levels.
Furthermore, Alibaba’s cloud sales were up 62% at $1.5 billion and it has been the company’s fastest-growing business segment for a while. The cloud business continues to gain traction among enterprises, as the company expands its SaaS offerings and increases research & development. WIth that in mind, could these developments propel BABA stock higher as we head into June?
JD.com Poised For Stronger Growth
JD.com Inc. (JD Stock Report) is China’s largest online retailer. The company just reported its first quarter earnings in mid-May. Despite the coronavirus pandemic, which caused most of mainland China to be closed in the first quarter of 2020, JD still managed to post a 21% revenue growth year-over-year.
JD stock price has been up more than 50% for the past 6 months. Just this month alone, the shares of JD has gone up more than 20% and is currently trading at $51.02. This came as the e-commerce giant has been increasingly partnering with various manufacturers to facilitate product development and marketing. The trend propelled the emerging e-commerce models such as consumer-to-manufacturer (C2M), resulting in highly competitive pricing. For instance, JD.com is partnering with LG to sell RMB 5 billion worth of goods, one of the latest examples of the C2M initiative.
JD.com is also the largest retailer in China by revenue. This shouldn’t come as a surprise given its wide reach in the country. The company has 730 warehouses across 29 cities in China, and seven fulfilment centres. This in effect allows JD to reach customers in every corner of China and keep its promise of quick deliveries. With a large moat created with its wide reach with hundreds of warehouses all over China, is JD.com a stock to buy and hold?
Is Pinduoduo Getting Bullish Again?
Shares of Pinduoduo (PDD Stock Report) recently surged to an all-time high after the company posted its first-quarter earnings. If you are not familiar with Pinduoduo, it’s an e-commerce company focused on group purchases. The company is widely known for its deep discounts. It posted a 44% increase in revenue to $924 million annually, beating analysts’ estimates by $189 million. On the other hand, its net loss widened from $265 million to $582 million. Since the start of the month, PDD stock has gone up more than 30% and is currently traded at $60.36.
PDD stock post-earnings pop suggests investors weren’t too concerned about its widening losses, but were in fact more excited by its robust growth in revenue and users. It is reported that the average daily orders since May are close to 65 million, compared with around 50 million before the pandemic. With more consumers increasingly turning to e-commerce to stock up on groceries and food since the outbreak, can investors expect a further uptick in PDD stock?