As we enter August 2024, the allure of stocks from companies in China remains strong among savvy investors looking for substantial growth opportunities to buy on the dip. Over the past few years, the Chinese market has experienced its share of volatility. It has been influenced by regulatory changes, geopolitical tensions and macroeconomic shifts. However, these dips have often presented attractive entry points for those willing to embrace the inherent risks for potentially high rewards.
Currently, several factors make this an opportune time to consider dipping into the Chinese stock market. First, China’s commitment to technological innovation and infrastructure development continues to drive the growth of its domestic industries. Additionally, easing tensions and progressive trade agreements are likely to foster a more favorable international business environment. Lastly, the recent pullbacks have led to attractive valuations in sectors poised for recovery.
With this backdrop, August 2024 presents a strategic moment to explore undervalued Chinese stocks that are poised to benefit from both short-term catalysts and long-term economic trends. Here are three such stocks from companies in China to buy on the dip that are not just surviving the troughs but are set to thrive as market conditions improve.
Alibaba (BABA)
Alibaba (NYSE:BABA) stands as a compelling investment opportunity. Despite broader market volatility, Alibaba has demonstrated resilience. This is seen in the company’s recent share buyback initiatives and diversification efforts. BABA’s diverse business model and robust financial health position it well to weather economic uncertainties and capitalize on emerging market trends.
The company has aggressively bought back 77 million ADRs in the previous quarter, spending a whopping $5.8 billion. BABA’s revenue for the fiscal first quarter of 2025 is projected at $34.62 billion, an expected growth of 6.7%. This growth is expected to be driven by robust performance in its cloud computing and digital media ventures.
Alibaba’s shares are trading at a forward Non-GAAP P/E of 9.5x, significantly below the five-year average of 14.9x. This valuation presents a discount, suggesting that Alibaba’s stock is undervalued.
Market analysts remain optimistic about Alibaba’s trajectory, with an average price target of $107 on the stock. This presents a compelling upside of 33% from current levels.
Tencent (TCEHY)
Tencent (OTCMKTS:TCEHY) is a juggernaut in the Chinese internet and technology sector. With a diverse portfolio that spans social media, gaming and fintech, Tencent has established itself as a central figure in the global digital transformation.
In the gaming sector, Tencent is not only China’s leader but also a global powerhouse. THe company owns significant stakes in world-renowned gaming companies such as Riot Games and Epic Games. This strategic positioning allows Tencent to capitalize on the booming entertainment and esports markets internationally.
Tencent’s financial resilience is evident in its robust revenue growth and strong profit margins. In Q1 2024, Tencent reported revenue of RMB 160 billion, marking a 6% increase year-over-year. The company’s net profit margins have also consistently outperformed industry averages, highlighting efficient management and a lucrative business model.
Despite these strong financials, Tencent trades at a forward P/E of 15.5x, significantly below its historical average. This undervaluation presents a unique buying opportunity, especially considering Tencent’s ongoing initiatives in AI and cloud computing, which are set to drive future growth.
JD.com (JD)
JD.com (NASDAQ:JD) has grown from a modest online magneto-optical store into one of China’s largest e-commerce platforms. The current undervaluation in the market offers a unique opportunity for investors to engage with a forward-thinking digital commerce leader at a potential discount.
JD.com’s financial performance reflects a well-oiled machine capable of generating substantial revenue and maintaining profitability amidst economic uncertainties. In the first quarter of 2024, JD reported a solid revenue increase, affirming its growth trajectory despite broader market challenges.
The company is broadening its geographical footprint, venturing into emerging markets in Southeast Asia and Europe. Leveraging its sophisticated logistics infrastructure, the company aims to replicate its domestic success internationally, catering to new customer bases with efficiency and reliability.
Despite the company’s solid performance, JD.com’s stock remains undervalued relative to its peers. This discrepancy in valuation is largely attributed to broader macroeconomic concerns and a general concern towards Chinese equities rather than shortcomings within the company itself.
On the date of publication, Mohammed Saqib did not hold (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.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
