Chinese Equities on the Rise: 3 Top Ranked Stocks to Buy Now
After getting hit hard in 2022 along with the rest of global equity markets, Chinese stocks are making a bull run.
Although the consensus across Wall St is quite bearish on the Chinese economy and stock market now, I believe that view is too pessimistic. Policy has been somewhat belated, but it appears the Chinese authorities will soon be executing an economic stimulus package.
This should provide a nice boost to the economy and coincides with what appears to be an acceleration in global economic growth.
Additionally, several major Chinese companies have experienced considerable earnings estimate upgrades, and now enjoy top Zacks Ranks. Alibaba BABA, NetEase NTES, and New Oriental Education and Technology Group EDU are three stocks with improving outlooks and some nice momentum carrying them higher.
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Alibaba
Alibaba is a multinational conglomerate and one of the world's largest e-commerce companies based in China. Founded by Jack Ma in 1999, Alibaba operates various online platforms, including Alibaba.com, Taobao, Tmall, and AliExpress, facilitating retail and wholesale transactions, as well as cloud computing services, digital media, and entertainment. It is a significant player in the Chinese market and has expanded its influence globally, making it a prominent name in the tech and e-commerce industry.
Alibaba has begun to see analysts raise earnings estimates, with a majority now favoring higher earnings. BABA has a Zacks Rank #1 (Strong Buy) demonstrated by its upward trending earnings revisions. Alibaba is expected to grow earnings at an impressive 20% annually over the next 3-5 years.
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Although there is no obvious technical setup in BABA stock at the moment, the technical picture is building in a conducive manner for higher prices. Alibaba price action has now been forming a major consolidation for over 18 months, which appears to be a proper bottoming pattern.
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Alibaba is trading at a one year forward earnings multiple of 14.7x, which is below the market average of 21.2x, and below its five-year median of 28.6x.
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NetEase
NetEase is a leading Chinese internet technology company that operates a diverse range of online services and platforms. Founded in 1997, NetEase is known for its popular online gaming services, including Fantasy Westward Journey and Knives Out.
In addition to gaming, the company offers e-commerce, advertising, music streaming, and other internet services, making it one of the major players in the Chinese tech industry. NetEase has also expanded its global presence and has become a prominent name in the international gaming and entertainment markets.
NetEase currently boasts a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. In the chart below, we can see that earnings estimates have been trending higher since the start of the year and have recently begun to accelerate to the upside.
Over the last two months FY23 earnings estimates have been revised higher by 6.2% and are projected to climb 23.3% YoY.
Image Source: Zacks Investment Research
NetEase is trading at a one year forward earnings multiple of 19.6x, which is below the market average of 21.2x and below its five-year median of 26.5x. Additionally, NTES pays a 1.7% dividend yield that it has raised by an average of 26% annually over the last five years.
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New Oriental Education and Technology Group
New Oriental Education & Technology Group is a leading provider of private educational services in China. Founded in 1993, the company offers a wide range of educational programs and services, including language training, test preparation, and academic tutoring for students from kindergarten to adult learners.
EDU is well-known for its English language learning programs, which have gained immense popularity in China. With a strong presence across the country, the company has played a significant role in shaping the education landscape in China and has become a trusted name in the field of private education.
Like the other two stocks, New Oriental Education and Technology company has a Zacks Rank #1 (Strong Buy) rating. FY23 earnings estimates have been upgraded by 23.3% over the last two months and are forecast to grow 54% YoY to $2.33 per share.
EDU also has a compelling technical trade setup. After breaking out from a six-month consolidation and trading higher in a hurry, EDU stock price has carved out a bull flag continuation pattern. If the price can break out above the $57.50 level, the stock should make another nice run higher. Alternatively, if the price can’t hold above the $54 level, the setup is invalidated, and investors may want to looks for other opportunities.
Image Source: TradingView
EDU is trading at a one year forward earnings multiple of 33.5x, which is above the market average aof 21.2x, and below its five-year median of 38.2x.
Image Source: Zacks Investment Research
Bottom Line
Trading in international stocks, especially Chinese stocks come with additional risk. However, because it is a place where fewer investors are fishing, the opportunities can also be richer.
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NetEase, Inc. (NTES) : Free Stock Analysis Report
New Oriental Education & Technology Group, Inc. (EDU) : Free Stock Analysis Report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
