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From the Great Wall to Wall Street: 3 “Strong Buy” Chinese Stocks to Watch

·6 min read

China has been getting a lot of flak – perhaps justified – as the source of the novel coronavirus that has wrought so much havoc in 2020. But set politics aside for now, and focus on the markets. As the source of the virus, China was also the first to see an outbreak – and the first to start the economic comeback. The Asian giant now appears to be in the midst a V-shaped recovery, giving some hope of surcease for the rest of us.

On the economic front, there are several concurrent developments pushing Chinese growth. Capital flows are giving China a major boost. The country is attracting international private capital, but government initiatives are huge. Beijing’s current policies include a $2 trillion-plus ‘five-year-plan’ of investments in vital areas: AI, IoT, data centers, 5G, ultra-high voltage electrical transmission, and alt-energy vehicles. These are widely viewed as the technologies of tomorrow; China is funding them today.

The result is a surge in manufacturing. China’s Caixin index – a gauge of purchasing manager sentiment and activity – reach a decade high point last month, in the wake of the virus. It’s a clear sign that China’s factories are getting back to work.

The upshot, of course, is that there are going to be plenty of stocks in Chinese companies gearing up for growth in the near future. Using the TipRanks database, we’ve pulled three such equities – all from China, but traded on Wall Street – that get Strong Buy ratings from the analyst community.

LexinFintech Holdings (LX)

We’ll start with a holding company, LexinFintech. This company controls a series of subsidiaries in the online consumer financial service sector. The services range from wealth management to monetary loans to installment payments, with a customer base among China’s young professionals.

Now this doesn’t mean that the corona crisis has been easy for Lexin. Revenues slipped by $650 million in Q1, but are trending back up now; the company reported 18% sequential revenue growth in Q2, and a return to EPS profitability.

Nomura analyst Martin Ma believes Lexin will do well in coming quarters.

“We expect continued profitability recovery into 2H20F, as we have seen improved 30-day+ delinquency rate in 2Q20, on the back of GDP growth recovery, and management guided that Lexin will increase its focus on offline customer acquisition in 2H20, which has lower acquisition cost and business quality compared to online channels,” Ma opined.

Ma rates LX shares a Buy, and his target price, of $11.75, implies an impressive upside of 60%. (To watch Ma’s track record, click here)

LX's Strong Buy analyst consensus on LX is based on 5 reviews, and they are unanimous; the stock has only positive reviews. Shares are selling for $7.30 and the average price target of $12.21 implies a 67% upside potential. (See LX stock analysis on TipRanks)

21Vianet Group, Inc. (VNET)

Our next stock is in China’s largest carrier-neutral data center and internet provider. 21Vianet provides space for customers’ server and networking hardware, while also providing interconnectivity and data delivery to all points around the globe.

21Vianet holds a niche of ever-increasing importance in today’s digital world, and its revenues have been growing steadily. Over the past four quarters, the company has seen the top line rise from $980 million to $1.14 billion. Shares have grown, too, with barely a blip from the coronavirus. VNET is up an eye-opening 193% since the start of the year.

At the end of Q2, the company got a big boost – both in funding and confidence building – when it announced the closing a $150 million investment from Blackstone. It was a milestone for 21Vianet, and helped offset EPS losses in the quarter. More recently, the company has raised another $350 million through the sale of 17 million shares of stock. It’s a successful capital raise that puts 21Vianet on solid footing.

Credit Suisse analyst Colin McCallum pleased by VNET’s successful fundraising, and sees it as a strong support for the company’s move toward a purer data center business.

“The capital raise does not surprise us, given that the structural demand for data centres looks extremely strong. Furthermore, data centers have a long lead time for construction (circa 12-18 months) and are capital intensive…”

McCallum shows his confidence with an Outperform (i.e. Buy) rating, and a $28.50 target price that indicates room for 34% upside growth this year. (To watch McCallum’s track record, click here)

21Vianet is another stock with a unanimous Strong Buy, having 3 Buys set recently. The stock has an average price target of $30.80, slightly higher than McCallum’s, that suggests a 41% upside form the $21.28 trading price. (See VNET stock analysis on TipRanks)

Tal Education Group (TAL)

Last on our list of Chinese stocks is a Beijing-based education company, Tal. Tal focuses on technology and science education in the classroom, and is part of a wave of such endeavors present at all levels of Chinese education. TAL has had success bringing integrated internet-based technology to schools in China’s major tier-1 cities, and is moving toward the smaller markets.

Revenues of $910 million powered a return to EPS profitability in Q2, as the company started coming back from the economic crisis and as schools begin to reopen.

Covering TAL for Nomura, analyst Jessie Xu takes an upbeat stance, with a Buy rating a $93 price target. That target implies an upside of 24% for the stock. (To watch Xu’s track record, click here)

Backing that forecast, Xu writes, “We believe TAL is still the best online & offline integration play in the China education space. The strong online momentum should continue into 2QFY21F. We forecast 2Q revenue to grow by 25%, higher than guidance... We believe TAL will also be able to maintain its leading position in following quarters of the year.”

All in all, with 8 recent reviews, including 7 Buys and 1 Hold, TAL shares earn a Strong Buy rating from the analyst consensus. The stock is selling for $75.22, and the average price target of $85.65 suggests it has a growth potential of 14% from that level. (See TAL stock analysis on TipRanks)

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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.