Billionaire Ken Griffin Says the Chinese Equity Market Is Incredibly Attractive — Here Are 3 Stocks to Take Advantage
The post “zero-Covid” rebound in China has been something of a disappointment so far. Many thought that the removal of the stringent lockdown policies at the back end of 2022 would lead to an economic revival, but the uptick has been rather muted.
Despite some decent economic data, other issues have come to the fore, such as elevated rates of unemployment among the younger population, a deceleration in manufacturing operations, a challenging housing market, and ongoing geopolitical tensions with the US.
These concerns have seen investors shy away from Chinese stocks, but billionaire Ken Griffin is not in that camp. “There’s a general level of uncertainty as to the level of growth in China today,” Griffin recently noted, “we’re actually more constructive on growth.”
In fact, the founder of the Citadel hedge fund – a firm overseeing around $57 billion in assets – goes on to add that the “scale and scope of the Chinese equity market is incredibly attractive.”
Griffin, who pocketed $4.1 billion in earnings last year, is obviously worth listening to on investing matters, and with this in mind, we delved into the TipRanks platform and pulled up 3 stocks that are primed to take advantage of Chinese growth. The Street’s experts agree these are names to own right now – all are currently rated as Strong Buys by the analyst consensus. Let’s check the details.
JD.com, Inc. (JD)
At the top of our list is JD.com, a prominent e-commerce giant and one of China’s largest companies. JD.com takes pride in its extensive infrastructure, featuring an impressive network of over 1,500 warehouses, covering a staggering 31 million square meters, all dedicated to bolstering its online retail operations. With a market capitalization surpassing US$59 billion, JD.com generated a remarkable net revenue of over US$151 billion in the previous year.
JD.com operates mainly in the B2C realm, and its retail site offers a wide range of products to the Chinese market. Product lines include everything from apparel to cosmetics to electronics, and even groceries, and the company includes both same-day and next-day delivery services. The company’s logistics division is known as an industry leader for online retail and delivery in China.
In its most recent quarterly report, for 1Q23, JD.com showed a top line of $34.98 billion, for a modest 1.4% increase year-over-year and beating the forecast by $116.84 million. The bottom-line figure, adj. EPADS (earnings per American Depositary Share) of $0.69 beat expectations by 19 cents per share.
Investors were generally pleased with the results but offered only temporary respite from a downbeat performance this year – all in, the shares are down 34% in 2023. That, however, opens up an opportunity for investors, according to Morgan Stanley analyst Eddy Wang.
“JD’s share price has significantly underperformed its e-commerce peers YTD, and it is now trading at 6.7x 2023e ex-cash non-GAAP P/E – a historical trough level,” Wang writes. “We believe the current valuation reflects the market’s in our view excessively pessimistic expectations relating to China’s consumption recovery and JD’s GMV growth recovery. We expect JD’s GMV growth to reaccelerate from 2Q23, and to have a more meaningful growth pick-up in 2024. This therefore makes JD’s current share price and valuation levels very attractive for long-term investors, in our view.”
Wang sums up his stance on JD shares with an Overweight (i.e. Buy) rating and a $60 price target that implies ~63% gains over the next 12 months. (To watch Wang’s track record, click here)
Overall, Wall Street is with the bulls on JD; the stock has 14 recent analyst reviews, and these include 11 to Buy and 3 to Hold, for a Strong Buy consensus rating. The stock’s average price target of $60.14 matches almost perfectly with the Morgan Stanley outlook. (See JD stock forecast)
Trip.com Group (TCOM)
Sticking with the world of online business, we’ll narrow our focus – to the travel industry. Trip.com is a leading travel platform, offering users a ‘one-stop shop’ for world travel. Users on the company’s brands can explore travel options, find inspiration for destinations, make informed decisions on the most cost-effective bookings, share their travel experiences, and find hassle-free support even while they are en route.
As a holding company, Trip.com operates four distinct brands: Trip.com itself, bolstered by Ctrip, Skyscanner, and Qunar. Collectively, these brands have established themselves as China’s foremost online travel site. Impressively, the company achieved nearly $3 billion in revenues last year, and its first-quarter results indicate that it is poised to surpass that figure in the current year.
Trip.com delivered a stellar performance in the first quarter of 2023, reporting impressive top-line revenue of US$1.3 billion. This exceeded analysts’ expectations by nearly $140 million and showcased a remarkable 124% growth compared to the first quarter of 2022. It is worth noting that this result even surpassed the company’s pre-COVID first quarter of 2019. On the bottom line, the company’s adj. EPADS reached $0.45, beating expectations by a solid margin of 19 cents. This robust profitability demonstrates a significant improvement from the break-even level recorded in the prior-year quarter.
On the balance sheet, Trip.com finished 1Q23 with $9.9 billion in cash, short-term investments, and other liquid assets. The company’s results came as China began scaling back COVID restrictions and reopening both ordinary commerce and travel activity.
All of this has caught the eye of Benchmark’s 5-star analyst Fawne Jiang, who sees growth as the key point for investors here. She writes, “Looking ahead, we continue to view TCOM one of the best consumer plays in China in FY23/24 considering: 1) travel remains the sweet spot for consumption growth; 2) earlier investment will continue to bear fruits driving outsized growth thanks to higher online penetration and increasing market consolidation, and 3) sustainable and improving operating leverage.”
Quantifying her stance, Jiang gives TCOM shares a Buy rating with a $55 price target to indicate her confidence in a 56.5% upside on the one-year time horizon. (To watch Jiang’s track record, click here)
Overall, of the 13 recent analyst reviews on file for TCOM shares, 12 are to Buy against a single Hold – giving the stock its Strong Buy consensus rating. TCOM is currently priced at $35.17 and its $45.93 average price target suggests it will gain 31% in the year ahead. (See TCOM stock forecast)
Baidu, Inc. (BIDU)
We’ll wrap up our list of Chinese stocks with Baidu, a major name whose size and scale has gained it exposure outside of China. Baidu is the Chinese answer to Google, the largest search engine operating on the Chinese-language internet. The company was founded back in 2000, and, like its English-language counterpart, it has since diversified its business lines. The smaller of Baidu’s two main divisions, iQiyi, is the leading online TV streaming service in Asia, with more than 500 million monthly active users. The larger segment, Baidu Core, is the main driver of the company’s revenue, accounting for some 70% of the top line.
Baidu Core is the company’s provider of online marketing services, including internet search, as well as non-marketing value-added services and a number AI-powered initiatives. These latter include the Mobile Ecosystem, which includes a dozen or so sophisticated apps; the AI Cloud, a set of software services and solutions; and Intelligent Driving & Other Growth Initiatives, which includes multiple mobility-related AI ventures.
Baidu is now one of China’s largest AI companies, and in recent months has moved to consolidate that position through the introduction of its ERNIE bot, a generative AI product based on the knowledge-enhanced large language model. The bot will be used to draw in more users and customers, improving the base, and will also become the base for a new AI ecosystem.
All of this has translated into impressive results for Baidu in in 1Q23. The company’s top line revenue, reported at $4.54 billion, was up a modest 1.3% y/y – but it beat the estimates by $230 million. The company delivered adj. EPADS of $2.34, $0.50 above Street expectations. Baidu also finished the quarter with deep pockets. The company’s total cash and liquid assets came to $28.25 billion.
Checking in again with Benchmark analyst Fawne Jiang, we find her noting cash generation and ERNIE as the main attractors to this stock. Jiang says of Baidu, “We view BIDU shares as uniquely positioned and a top pick in our space, considering 1) its strong net cash balance (1/3 of its current market cap), 2) strong cash generation, 3) a fundamental ad beneficiary on reopening and 4) margin upside/earning upward revision potential. While ERNIE’s adoption may turn out to be slower than expected, the optionality of a technological breakthrough remains on the table.”
These comments back up Jiang’s Buy rating on BIDU shares, while her $210 price target implies a one-year upside potential of ~49%.
The Strong Buy consensus rating on BIDU is unanimous, based on 12 positive reviews on file. The stock is selling for $141.45, and its $190.64 average price target suggests it will appreciate ~35% by this time next year. (See Baidu stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
