China enacted shutdowns in at least 27 cities as part of its zero-Covid policy. But these three Chinese stocks will withstand the downturn.
Baidu (BIDU): operates an internet search engine that is the most popular website in China.
Alibaba (BABA): has a powerful e-commerce platform and growing cloud services.
Weibo (WB): is taking controversial steps to stop “bad behavior” on its platform.
A large shopping mall in the central city is festooned with Chinese flags in celebration of the National Day after the victory against the Covid-19 epidemic.
Source: humphery / Shutterstock.com
I’ve been pretty bullish on China stocks for a while. Even in the worst of times, the Chinese economy is pretty formidable. And the population (1.41 billion as of 2021) makes for an enormous market with vast opportunity.
But not everything is rosy for Chinese stocks.
More than two years after the Covid-19 pandemic began in Wuhan, China, authorities in Beijing, Shanghai and two dozen other cities introduced renewed lockdown measures to stamp out another coronavirus variant.
Lockdowns in Shanghai actually started a few weeks ago, but now Beijing is shutting down schools and locking down targeted neighborhoods as part of its zero-Covid strategy.
In all, there are shutdown in at least 27 Chinese cities. And that’s threatening the Chinese economy all over again. Unemployment reached a 21-month high in March, according to CNN. The yuan, which is China’s currency, is at its lowest level since November 2020.
Lockdowns and economic pain are tough pills to swallow. But if you’re as bullish on Chinese stocks as I am, you know that there are plenty of companies that are strong enough to emerge from these lockdowns and prosper moving forward.
For this exercise, I screened for Chinese stocks that trade on U.S. exchanges and limited the screen to companies that have a consensus rating from analysts of “Buy” or better. Finally, I also looked for companies that have a consensus 12-month price target that’s at least 50% better than the current price.
I also specifically stayed away from the popular Chinese automotive companies — Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV) because of the potential of manufacturing closures. And I also avoided airlines such as China Eastern Airlines (NYSE:CEA).
A Baidu (BIDU) sign outside a company office in Shenzhen, China.
Source: StreetVJ / Shutterstock.com
If you’re doing an internet search in China, you’ll likely be using Baidu (NASDAQ:BIDU) to do it. Baidu operates an internet search engine that is the most popular website in China. It’s also ranked #4 in the world based on the average number of visitors and page views.
On top of that, Baidu operates the Nuomi website that people can use to book flights and hotels, or to book other service providers.
While Nuomi will likely take a big hit during the pandemic, people who are locked down will be using the internet and Baidu more than ever. And the company also will entertain you with its iQiyi video website that offers movies, TV, cartoons, music videos and original content.
The company is also a leader in autonomous vehicles in China, having the country’s biggest autonomous driving fleet in China. Baidu is also expanding to offer a driverless ride-hailing services, getting its first permit in China in April.
Priced at about $128 as of this writing, BIDU stock has an average price target of $226.55, which gives potential upside of 76%.
Alibaba Group Holding (BABA)
Alibaba Group (BABA) headquarters sign located in Hangzhou China
Source: Kevin Chen Photography / Shutterstock.com
I think I’ve always liked Alibaba (NYSE:BABA) stock. With its powerful e-commerce platform and growing cloud services, BABA stock is like Amazon (NASDAQ:AMZN) in China.
And like I wrote last month, Alibaba is enormously undervalued right now. Trading at $100, it’s below its 50-day and 200-day moving averages.
Alibaba is being hurt right now by a combination of factors. Like other tech stocks, its seen as vulnerable to a slowdown in revenue growth. And as an e-commerce play, it’s seen as a possible victim to supply chain problems.
But I think those naysayers ignore the key position that Alibaba is in. E-commerce companies are immensely important during lockdowns, and cloud companies are critical when people are being forced to work or learn remotely.
A week ago, BABA was at $90 and I wrote that investors should wait until it finds support at $100 before taking a new position. That time has come. And with a consensus price target of $170.29, there’s about 88% upside right now in BABA stock.
Weibo Corporation (WB)
social media stocks weibo.com sign on window
Source: testing / Shutterstock.com
We’ve already seen the Chinese equivalents to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon on this list. Now it’s time for the Chinese equivalent to Twitter (NYSE:TWTR).
Although I don’t think that Elon Musk is going to try to take over this company.
Weibo (NASDAQ:WB) is a microblog that essentially functions as Twitter in China. It made a lot of waves last week when it announced it would start publishing IP locations on people’s account pages when they post comments. That eye-opening measure is part of Weibo’s push to end “bad behavior” online.
True, social media platforms like Weibo and Twitter have plenty of trolling. And that’s going to be one of Elon Musk’s biggest issues if and when he closes the deal to take Twitter private and change the platform’s rules to, in his view, “encourage free speech.”
Weibo had about 573 million monthly active users as of the third quarter of 2021, which was an increase of 62 million from the previous year. So the platform is growing. In the most recent quarter, Weibo reported that its revenue was up by 20% from a year ago to $616.3 million, beating analysts’ estimates of $607.4 million.
Weibo is the cheapest stock on this list at $22.61 as of this writing. But with a consensus price target of $38.77, it has potential upside of 71%.
On the date of publication, Patrick Sanders 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.
