Signs of a recovery in the world’s second largest economy continue to emerge. The Chinese housing sector continues to rebound. That alone bodes well for the Chinese economy. Meanwhile, signs of potential rate cuts in the U.S. continue to emerge. Weaker than expected payroll data in May increases the likelihood that the Federal Reserve will cut rates in the coming months. The overall result is that Chinese penny stocks look particularly interesting at the moment.
The combination of exposure to the Chinese economy and quick return potential makes Chinese penny stocks very interesting at the moment. I’ve chosen not to cover better known Chinese stocks that are inexpensive at the moment, especially those opportunities in electric vehicles. That isn’t to say that I don’t think they make reasonable investments at the moment. Rather, I wanted to introduce some lesser known Chinese companies. Let’s take a look.
Full Truck Alliance (YMM)
UBER Stock. Uber Layoffs. Self-driving truck stocks: a self-driving truck on the road
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Full Truck Alliance (NYSE:YMM) is a digitized platform offering freight matching services across China. That includes everything from listing to brokerage, insurance, credit solutions, software, toll collection, and more.
In my mind what makes Full Truck Alliance stock such a strong overall choice is exposure to the broad Chinese economy and performance. Full Truck Alliance is a supply chain firm at its heart, and should see increasing opportunities as the economy rebounds in China. Supply chain stocks are well positioned at the moment but that isn’t the only reason to consider Full Truck Alliance.
Investors should also consider the company’s strong performance in the first quarter. Revenues increased by 33%, reaching $314.2 million. Meanwhile, net income increased by 42.5%, climbing to $81.2 million.
Although Full Truck Alliance is a penny stock which currently trades for less than $9, it also provides a dividend. Therefore, it is the rare penny stock that also provides income.
HUYA Inc. (HUYA)
the HUYA logo displayed on a mobile phone
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HUYA Inc. (NYSE:HUYA) operates a streaming platform and is a stock which is expected to grow rapidly. The low target price implies 25% upside with overall potential to double.
HUYA is interesting as a potential investment simply because it’s a little bit difficult to figure out. Investors who dive into the most recent earnings report will see that the company is largely a product of its environment. Meaning that the company is seeing substantial softness in demand that has resulted in a significant drop off in revenues.
Yes, the company’s losses narrowed and some operational metrics improved but that was likely a function of lower volume overall. Yet, HUYA stock has continued to perform well throughout 2024.
I think that strong performance is primarily a function of overall potential in streaming platforms within China. The only other strong catalyst I can see is that the company initiated a share repurchase program valued at $100 million in late 2023. It had used a little less than half of that capital to repurchase shares by the end of the first quarter.
Regardless, both analysts and investors see the inherent value in HUYA stock at the moment which may be enough to propel it higher again.
China Automotive Systems (CAAS)
A stack of auto parts
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China Automotive Systems (NASDAQ:CAAS) is a company that provides automotive components to a number of leading manufacturers. That list of manufacturers includes BYD (OTCMKTS:BYDDY), Ford Motor (NYSE:F), and Stellantis (NYSE:STLA). The company primarily focuses on steering components and recent performance paints an interesting picture regarding whether the stock is worth considering.
Revenues were relatively flat in the first quarter, having decreased by 2%. While that’s not a strong sign overall, assuming China does continue to rebound, vehicle sales should increase. That means China Automotive Systems will likely ship more automotive components in the second and third quarters than it did in the first quarter.
The primary bullish signal to take from the earnings report is that EPS increased by 17.4% in the first quarter. Although volumes were flat, the company clearly understands how to operate and reward investors during lean times.
Now may be the time to get on board as China rebounds.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Alex Sirois 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.comPublishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
