Considering Beijing’s fluctuating economic cues, betting on the best Chinese stocks may seem odd.
Recent data shows that the Chinese economy grew 4.7% from April to June, down significantly from the 5.3% gain in the prior year quarter. Challenges, including the housing slump and weaknesses in industrial output, have weighed down market sentiment.
However, Alex Yao, a lead figure in Asia TMT research at JPMorgan Chase, believes Chinese tech stocks have bottomed out. His stance on the Chinese tech sector underscores a broader reconsideration among investors amidst the market volatility stemming from geopolitical tensions and other market uncertainties.
It’s an excellent time to scoop up some shares in the best Chinese stocks. Tech-focused, these stocks have effectively weathered the storms, promising exceptional long-term upside potential from current prices. Understanding the high-risk, high-reward dynamics at play is imperative.
Baidu (BIDU)
Baidu (NASDAQ:BIDU) is a compelling value proposition in the Chinese tech arena. Although the stock has been laggard over the past few years, its AI ventures could ignite a promising rebound.
It’s been making major strides in the AI space through its ERNIE generative AI models. The goal is to fuel the development of customized models and AI-native applications to reduce its dependency on traditional search and advertising. Advertising may drive 60% of its revenue, yet the firm’s expanding AI focus could reshape its landscape. Despite the sluggish sales of late, CEO Robin Li is confident that AI will sustain top-and-bottom-line growth over the long term.
Furthermore, Baidu’s cloud computing segment continues to grow in tandem with its AI endeavors. Its cloud division has seen robust growth, climbing over 6% last year and surging 12% in Q1 this year. With the layering of AI, sustained expansion is anticipated.
Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) is a popular Chinese lifestyle retailer with a global presence. It distinguishes itself from its peers through its competitive pricing and dynamic product range. Moreover, despite the headwinds, it boasts an excellent track record of posting consistent growth.
Additionally, it stands as an undervalued play poised for long-term value creation. Sporting a forward P/E of just 12.3 times and an enticing 2.7% yield, this lifestyle retailer presents itself as a highly attractive value proposition.
Q1 was incredible for the firm, posting a superb 26% YOY surge in revenues to $515.7 million and a 2% increase in EBITDA margins to 25.9%. Additionally, Miniso is looking to expand rapidly, backed by plans to launch 900 to 1,100 new stores annually through 2028, targeting upwards of 20% growth. Also, with $221 million in free cash flows, the company is well-equipped to sustain its growth trajectory.
Yum China (YUMC)
Yum China (NYSE:YUMC) is a juggernaut in the Chinese fast-food landscape, steering its portfolio of popular brands, including KFC, Pizza Hut, Lavazza and Taco Bell.
With 15,022 stores in Q1, the firm continues effectively growing its footprint while bolstering its top-line growth. Top-line growth has averaged 5.31% in the past five years, while EBITDA growth averaged 6.55% over the same period.
Moreover, despite operating in less-than-ideal circumstances, Yum China remains solid from a fundamentals perspective, with core operating profits jumping more than 1% to $396 million. Similarly, adjusted EPS has risen 3% to 71 cents in the latest quarter.
However, despite the improving margins, the firm is up against headwinds with falling same-store sales and shrinking operational margins. Yet, as economic uncertainty eases, Yum China’s growth will return to beating top-line expectations again. Adding to investor confidence, the firm has committed to returning $1.5 billion to shareholders through dividends and share repurchases this year.
On the date of publication, Muslim Farooque did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.