China stocks with great potential.

Stocks have been shaky in recent weeks after the U.S. and China exchanged their latest rounds of trade war tariff hikes. Chinese stocks have been hit particularly hard by the trade war – for instance, the iShares China Large-Cap ETF (ticker: FXI) is up 8%, but is far underperforming the S&P 500, which is up a staggering 20% since Jan. 1. Despite concerns about the trade war’s impact on China’s economic growth, China’s e-commerce business is booming. Chinese online retail is a massive long-term investment opportunity, but buyers may still need to be selective given trade war pressures. Here are seven Chinese e-commerce stocks KeyBanc analyst Hans Chung is watching.

Next:Alibaba Group Holding (BABA) Credit

(VCG/VCG via Getty Images)

Alibaba Group Holding (BABA)

If the trade war is hurting growth in China, you sure wouldn’t know it by looking at Alibaba’s numbers. Alibaba just reported 50% earnings growth and 51% revenue growth in the most recent quarter, including 75% growth in cloud services revenue. In addition, Alibaba reported 721 million mobile active users, up 18% from a year ago. Chung says feed monetization could drive double-digit incremental revenue growth and Alibaba’s Freshippo retail store margins should continue to improve over time. KeyBanc has an “overweight” rating and $240 price target for BABA stock.

Advertisement

Next:

China stocks with great potential.

Stocks have been shaky in recent weeks after the U.S. and China exchanged their latest rounds of trade war tariff hikes. Chinese stocks have been hit particularly hard by the trade war – for instance, the iShares China Large-Cap ETF (ticker: FXI) is up 8%, but is far underperforming the S&P 500, which is up a staggering 20% since Jan. 1. Despite concerns about the trade war’s impact on China’s economic growth, China’s e-commerce business is booming. Chinese online retail is a massive long-term investment opportunity, but buyers may still need to be selective given trade war pressures. Here are seven Chinese e-commerce stocks KeyBanc analyst Hans Chung is watching.

Alibaba Group Holding (BABA)

If the trade war is hurting growth in China, you sure wouldn’t know it by looking at Alibaba’s numbers. Alibaba just reported 50% earnings growth and 51% revenue growth in the most recent quarter, including 75% growth in cloud services revenue. In addition, Alibaba reported 721 million mobile active users, up 18% from a year ago. Chung says feed monetization could drive double-digit incremental revenue growth and Alibaba’s Freshippo retail store margins should continue to improve over time. KeyBanc has an “overweight” rating and $240 price target for BABA stock.

Pinduoduo (PDD)

Pinduoduo is a Chinese e-commerce company that allows customers to capitalize on group buying deals, mostly via the Tencent (TCEHY) WeChat mobile app. Chung says Pinduoduo’s unique team-purchase model helps streamline the value chain for customers and its early success in consumer-to-manufacturing sales is promising. Chung said Pinduoduo is a solid long-term investment given the company’s massive scale, its potential for monetization, its differentiated artificial intelligence technology and its huge total addressable market. He says increased ad load and improved targeting should help drive monetization. KeyBanc has an “overweight” rating and $32 price target for PDD stock.

Vipshop (VIPS)

Vipshop is the parent company of online discount e-commerce website VIP.com. Starting in the fourth quarter of 2018, Vipshop began an initiative to optimize its business by phasing out low-margin categories, improving customer acquisition, and emphasizing apparel and flash sales. Chung says early checks indicate the investments are already paying off with improved sales turnover and customer growth. Chung is calling for at least 20% net income growth and 0.5% margin expansion in 2019, making Vipshop a compelling turnaround candidate for investors. KeyBanc has an “overweight” rating and $11 price target for VIPS stock.

Tencent Holding (TCEHY)

Tencent is one of the most valuable technology conglomerates in the world and is the parent company of the QQ social media platform, the WeChat messaging app, the Tenpay payment platform and Tencent Games gaming development. WeChat alone has more than a billion daily active users and 1 million mini-programs, which are tiny apps smaller than 10 megabytes that run instantly on the interface. Chung says the messaging app is the centerpiece of Tencent’s retail opportunities. He says Tencent can further monetize its user base via payment and cloud services. KeyBanc has an “overweight” rating for TCEHY stock.

Best (BEST)

Best is a supply chain services company that specializes in supply chain management, express delivery, cross-border logistics and other delivery services. Despite a highly competitive environment, Chung says Best is the gold standard in new retail logistics in China and is gaining market share from its peers. Best shares are down 50% in the past year amid the sell-off in the Chinese market, and Chung says investors should keep a close eye on industry pricing dynamics and BEST’s margin profile as the trade war plays out. KeyBanc has an “overweight” rating and $8 price target for BEST stock.

JD.com (JD)

JD.com is Alibaba’s closest competition for e-commerce market share in China. JD’s share has risen from 15.7% in 2016 to 16.7% in 2018, a distant second to Alibaba’s 56.2% share. Chung says JD is still playing catch-up when it comes to the latest trends in e-commerce, a situation that will likely lead to a slowdown in revenue growth in coming quarters. In addition, JD’s recent renewal of its Tencent deal was pricey, costing JD $800 million in cash and $250 million in stock. KeyBanc has a “sector weight” rating for JD stock.

Ctrip.com (CTRP)

Ctrip.com is the leading online travel platform in China. Unfortunately, in a weak economy, travel is exactly the type of discretionary spending that is often hit hardest. China reported just 7.6% growth in tourism during the Chinese New Year in February, down from 12.7% growth last year. Chung says Ctrip is offsetting macroeconomic weakness by gaining market share from competitors. Volume growth in low-end hotel booking has been strong, but competition in the space is driving lower take rates and eating into profitability. KeyBanc has a “sector weight” rating for CTRP stock.

China e-commerce stocks that should bounce back after the trade war:

Alibaba Group Holding (BABA)Pinduoduo (PDD)Vipshop (VIPS)Tencent (TCEHY)Best (BEST)JD.com (JD)Ctrip.com (CTRP)1 of 10

Wayne Duggan, Contributor

Wayne Duggan has been a U.S. News & World Report contributor since 2016. He is an expert at ...  Read more

The Most Important Ages for Retirement Planning

Retirement

The Most Important Ages for Retirement Planning: Age 50

Retirement

The Most Important Ages for Retirement Planning: Age 59 ½

Retirement

The Most Important Ages for Retirement Planning: Age 65

Retirement

The Most Important Ages for Retirement Planning: Age 66

Retirement

The Most Important Ages for Retirement Planning: Age 70 ½