Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? JD.com (SOHU), Nio (Nio), Li Auto (LI), Xpeng (XPEV) and BYD Co. (BYDDF).
X
China is the world’s most-populous nation and the second-largest economy with a booming urban middle class and amazing entrepreneurial activity. Often dozens of Chinese stocks are among the top performers at any given time, across an array of sectors.
But with China’s crackdowns a wide array of U.S.-listed Chinese stocks spanning many industries have been hammered in 2021. Coronavirus restrictions, power shortages and global supply-chain issues have all weighed on Chinese companies.
Still, JD.com and several EV makers have been hovering around entries, with XPEV stock a recent breakout.
Best Chinese Stocks Across Many Industries
As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:
In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world’s biggest auto market.
Several Chinese financial firms or brokerages listed in the U.S.
Several China stocks are in solar power.
For-profit education Chinese stocks are a notable nontech sector.
- New Oriental Education (EDU)
- Tal Education (TAL)
- 17 Education & Technology Group (YQ)
- Gaotu Techedu (GOTU), formerly known as GSX Techedu.
Don’t forget stocks in other fields, such as riding-hailing firm Didi Global (DIDI), beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).
Beijing Crackdown On Chinese Stocks
Investors should be aware of significant risks with investing in Chinese stocks. The authoritarian state and its regulators can impose sweeping restrictions, fines or bans on major companies, often with little notice or transparency.
That risk has been very apparent over the past year.
Alibaba ran afoul of regulators in late 2020, with regulators opening probes into internet platforms and suspending the Ant Group IPO. In April, China fined Alibaba $2.8 billion for anticompetitive actions and ordered it to change various practices.
But regulators also have gone after ride-hailing firms, video game makers for-school operators, online delivery apps, Macau casinos and online brokers. China has signaled that it’ll take a dim view of new overseas listings, especially for internet and data-centric companies. Many big U.S.-listed Chinese companies already have secondary listings in Hong Kong.
On Saturday, the State Administration for Market Regulation fined Alibaba, Tencent Holdings, JD.com, Baidu and more for failing to report a total of 43 corporate acquisitions going back eight years. Each violation carried a penalty of only 500,000 yuan, or $80,000.
Chinese Stock Risks, Continued
Accounting fraud, while less likely with institutional-quality names such as Alibaba, remains a concern. Luckin Coffee admitted to widespread fraud in 2020. Fraud charges alone can trigger massive share price losses.
Meanwhile, a new U.S. law could force Chinese companies to delist from U.S. markets. That threat isn’t imminent, and could be averted with negotiations between the Treasury Department and Beijing over accounting oversight. Still, it’s something that could loom large for China stocks in the coming years.
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
China Stock Investing Via ETFs
One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.
KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S.-listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times levered ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times levered ETF shorting Hong Kong’s biggest companies.)
Stock Market Trend Key
As always, investors should be following the overall stock market trend, adding exposure in confirmed uptrends and paring exposure or going fully to cash in corrections or bear markets. Right now the stock market is in a confirmed uptrend.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Best China Stocks To Buy: Key Ingredients
Focus on the best stocks to buy and watch, not just any Chinese company.
IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.
Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.
Start with those with strong earnings growth, such as Alibaba or Pinduoduo stock. If they’re not profitable, at least look for rapid revenue growth as with Nio stock. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.
Chinese stocks in general are out of favor now, with the possible exception of EV stocks. While Chinese electric vehicle makers are not immune to regulatory pressures, Beijing appears to want to foster the domestic industry.
Why This IBD Tool Simplifies The Search For Top Stocks
Best Chinese Stocks To Buy Or Watch
| Company | Ticker | Industry Group | Composite Rating |
|---|---|---|---|
| Li Auto | LI | Auto Manufacturers | 76 |
| Nio | NIO | Auto Manufacturers | 55 |
| BYD | BYDDF | Auto Manufacturers | n.a. |
| JD.com | JD | Retail-Internet | 82 |
| Xpeng | XPEV | Auto Manufacturers | 74 |
So let’s analyze these five top China stocks: Li Auto stock, Nio stock, BYD stock, Sohu stock and Weibo stock.
Li Auto Stock
Li Auto is one of several Chinese electric vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).
While still losing money, Li Auto has seen huge sales growth from its one current model, the Li One SUV. Li One is actually a hybrid, with a small gasoline engine to extend its range.
Li Auto delivered 7,649 vehicles in October, up 107% vs. a year earlier. That’s also up slightly from 7,094 vehicles in September, as chip shortages hit the automaker. Deliveries are still below their July and August levels.
After a huge run from its July 2020 IPO to a record 47.70 on Nov. 24, 2020, Li Auto stock plunged to 15.98 in May. Shares have formed a bottoming base within that larger consolidation.
Li Auto stock rebounded above its 200-day line on Oct. 7 and reclaimed its 50-day line on Oct. 14, adding to gains on Oct. 15. On Oct. 25, Li Auto broke a downsloping trend line, offering another early entry.
Li Auto fell modestly on Nov. 1 following its October deliveries. But it now has a handle in its base, giving it a lower official buy point of 34.93.
Li Auto on Nov. 23 surged as high as 33.97, but then back below an early entry around 33.
The hybrid maker reports earnings on Nov. 29.
Li Auto debuted on the Hong Kong exchange on Aug. 12, joining Xpeng in having a dual listing.
Li stock has a 76 IBD Composite Rating out of a best possible 99.
Bottom line: Li Auto stock is not a buy.
Nio Stock
While not as large as the diversified, profitable BYD, Nio is the most established of the Chinese EV startups. Nio has three electric vehicles, the ES8, the ES6 and the crossover EC6. It plans to release a high-end EV sedan, the ET7, in 2022.
Nio deliveries in October fell 27.5% vs. a year earlier to 3,667, plunging from September’s 10,628. A production line overhaul limited output to about 10 days last month.
On Nov. 9, Nio reported better-than-expected Q3 results, but gave weak guidance for the current quarter.
Nio has begun Norway deliveries for its ES8 SUV, kicking off a European expansion.
Nio stock peaked at 66.99 on Jan. 11, tumbling to a low of 30.73 on May 13.
Shares have rebounded over the past few weeks. The Nov. 8 intraday high of 44.27 is now an early entry, though investors could use a trend line from the top to get an even-lower entry. The official bottoming-base buy point is 55.23.
Bottom line: Nio stock is not a buy.
BYD Stock
BYD Co. is the biggest pure-play Chinese EV maker, making electric cars and buses, as well as many hybrids. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.
Notably, BYD is profitable, in sharp contrast to Li Auto, Nio and Xpeng Motors. BYD’s Q3 profit fell vs. a year earlier, while revenue rose modestly.
In October, NEV sales hit 81,040, up 212% vs. a year earlier. It’s the fifth straight month that NEV sales have increased by roughly 10,000.
October EV sales rose to 41,232. Plug-in hybrids increased to 38,771.
BYD has now sold 418,200 NEV vehicles this year, on track for 600,000 in 2021. It’s aiming for well over one million in 2022, becoming a major rival to Tesla.
Like Nio and Xpeng, BYD has begun selling EVs in Norway, starting with the Tang SUV. Exports are likely to be a big part of BYD’s future, as production continues to ramp up sharply.
The strong October EV sales figures followed a disappointing decline in Q3 earnings.
BYD stock corrected nearly 52% from its January peak of 35.94 to its May 12 low of 17.41, though that’s a smaller decline than Li Auto stock.
Shares broke out of a double-bottom base with a 35.35 buy point in Oct. 15, then kept running. BYD stock tumbled Oct. 28 and Oct. 29 on the Q3 EPS report and a $1.77 billion stock offering. BYD fell back into the buy zone but quickly moved back to highs. Shares continue to consolidate around new highs and above the prior base.
BYD is listed in Hong Kong and trades over the counter in the U.S. So the BYDDF stock chart is prone to lots of little gaps up and down.
Bottom line: BYD stock is extended from a buy zone, but investors should keep watch on this EV leader to see if it forms a new base.
Xpeng Stock
Xpeng makes the G3 small SUV, the P7 sedan and the smaller P5 sedan. The P5 sedan, officially launched in mid-September, is the first production car to come with Lidar.
Xpeng reported it delivered 10,138 EVs in October, up 233% vs. a year earlier and topping 10,000 for a second straight month. That included 6,044 P7 sedans, up 187%. Xpeng also delivered 3,657 G3 and G3i smart SUVs. It delivered 437 P5 sedans. The Lidar-equipped smaller sedan was launched in September.
Q3 deliveries reached 25,666, up 199% and sprinting past Xpeng’s target of 21,500-22,500 deliveries.
Xpeng sells some G3 SUVs in Norway, and is just expanding that to include some P7 sedans.
On Nov. 12, Xpeng said it would unveil a new SUV on Nov. 19 at an auto show, sending shares to a new high that day. On Nov. 19, Xpeng unveiled the G9 SUV, saying it’s targeted for international markets. The fast-charging SUV is due to launch in Q3 2022.
On Nov. 23, Xpeng reported better-than-expected Q3 revenue and guidance, including a big sequential gain in Q4 deliveries.
XPEV stock peaked at 74.49 in November 2020, nearly tripling from an IPO base. Shares then tumbled to 22.73 in May. But after rallying for a time, Xpeng stock formed a bottoming base, with a 48.08 buy point.
After trading above and below that entry for several weeks, Xpeng stock roared back above the 48.08 entry on Nov. 23 following earnings. Shares jumped again on Nov. 24, now extended from any entry for now.
Bottom line: Xpeng stock is not a buy.
JD.com Stock
JD.com is a Chinese e-commerce giant. But unlike many of its rivals, including Alibaba, JD.com is on the upswing.
JD.com earnings fell 2% in the latest quarter, while sales grew 32% to $33.9 billion. But that topped views, unlike many China internets, including Alibaba.
JD.com stock peaked at 108.29 on Feb. 17 and bottomed at 61.65 on July 25. Since then shares have been improving, especially since early October, with a big jump starting on Nov. 12 as they reclaimed the 200-day line.
On Nov. 18-19, JD.com stock broke a long-term trend line and then cleared short-term resistance to hit an eight-month high. That offered an early entry. But shares have consolidated since. Investors may want to wait for a clearer buy signal, perhaps using the Nov. 23 high of 92.69 as a new early entry.
JD.com is making its run alone, with other Chinese e-commerce plays and internet giants generally still in downtrends.
The stock has a 108.39 cup-base buy point.
JD.com will be added Hong Kong’s Hang Seng Index on Dec. 6, Hang Seng Indexes announced Nov. 19. Starting Dec. 2, MSCI will track JD.com via its Hong Kong shares, not its U.S. ADRs.
Bottom line: JD.com is not a buy.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE:
Catch The Next Big Winning Stock With MarketSmith
Best Growth Stocks To Buy And Watch
Best Chinese Stocks To Buy And Watch
