[Editor’s note: “5 Chinese Stocks to Buy When Coronavirus Fears Fade” is regularly updated to include the most relevant information available.]
Coronavirus fears are roiling global financial markets everywhere. Over the past few trading days, stocks of all shapes, sizes, and industries have fallen off a cliff as the World Health Organization has finally declared the novel coronavirus outbreak — which originated a China — a global pandemic.
But, during this Wall Street panic, one group of stocks has emerged as an unlikely winner: Chinese stocks.
As weird as it may seem, while coronavirus fears have caused the S&P 500 to drop nearly into bear market territory in just a month, many of the Chinese companies I follow are actually up over that stretch, and/or have fared far better than the market.
How is that possible? After all, isn’t the coronavirus hitting China hardest? As Mark D. Schild, Assistant Dean and Instructor of Finance at Seton Hall, told InvestorPlace in an email:
As with all companies, especially Asian companies, the coronavirus must be paid attention to, as there is little question that parts of the economy may slow down.
That is entirely true. But, the coronavirus spread is also dying down in China. A few weeks ago, the country was reporting thousands of new coronavirus cases each day. In the past week, though, China has been consistently reporting less than 50 new cases per day. Experts expect those numbers to fall to near zero by the end of the month.
In other words, while the rest of the world is dealing with an escalating coronavirus problem, China has already put that problem behind it. That’s why Chinese stocks are bouncing while stocks everywhere else are getting killed. For example, some of the best Chinese stocks to buy on the coronavirus dip that have shown impressive resiliency recently include:
- Alibaba (NYSE:BABA)
- Luckin Coffee (NYSE:LK)
- JD.Com (NASDAQ:JD)
- NIO (NYSE:NIO)
- Bilibili (NASDAQ:BILI)
Will this trend continue? I think so. Many Chinese stocks look dirt cheap on the heels of coronavirus weakness in February. It also helps that tons of fiscal stimulus from the People’s Bank of China and de-escalated U.S.-China trade tensions should help promote a v-shaped recovery in the Chinese economy as outbreak fears fade.
Big picture — it’s finally safe to start buying the dip in Chinese stocks, and this group will likely significantly out-perform U.S. stocks for the next few weeks to months.
Cheap Chinese Stocks to Buy When Coronavirus Fears Fade: Alibaba (BABA)
Percentage Off 52-Week Highs: -21.5%
Forward Price-Earnings Multiple: 25.2
Chinese tech giant Alibaba (NYSE:BABA) has seen its stock drop 15% in the wake of the coronavirus outbreak, and for no good reason.
The SARS outbreak negatively impacted retail sales growth in China by about 20% over the course of roughly six months. As soon as SARS was fully contained, retail sales picked back up to their normal rate.
With respect to the Wuhan coronavirus, while the outbreak has been worse, it also looks like it is going to be shorter lived in China, with it entirely contained to the first half of 2020. Thus, you’re talking about maybe a 20% haircut to retail sales growth over three to four months, before retail sales trends rebound back to normal.
That’s not much. Also, this is an e-commerce company. If consumers really were afraid to go out and shop, wouldn’t they just turn to online shopping? That’s a tailwind, not a headwind, for Alibaba.
Big picture — Alibaba doesn’t have much direct exposure to adverse impacts of the coronavirus, and those adverse impacts will be short-lived. Consequently, any and all weakness in BABA stock here is nothing more than a longer-term buying opportunity, especially considering the stock trades at a relatively cheap 27-times forward earnings multiple for what should be 20%-plus revenue and profit growth for several years to come.
Luckin Coffee (LK)
Percentage Off 52-Week Highs: -51%
Forward Price-Earnings Multiple: N/A
The Chinese stock which has been hurt the most by the coronavirus outbreak is Luckin Coffee (NYSE:LK). Shares are down nearly 30% on coronavirus fears for three big reasons.
First, LK stock had run up a ton to start the year, so shares were just looking for an excuse to cool off and pullback. Second, Luckin’s coffee shops are the exact places Chinese consumers will cut back on visiting so long as they’re concerned about getting sick and stuck inside their homes. Third, Luckin has a ton of stores in Wuhan, the epicenter of the outbreak.
But, if you consider that the adverse economic impacts of epidemics traditionally don’t extend beyond the lifetime of that epidemic and that the coronavirus in China is already slowing down, then you will see LK as a stock that has lost nearly a third of its value based on what could be bad numbers for just one or two quarters.
Seem like an overreaction? It is.
Taking a step back, Luckin Coffee is still one of the most explosive growth stories in China, capitalizing on a big consumption shift in China towards regular coffee-drinking. One day, this company will be the Starbucks (NASDAQ:SBUX) of China. A short-lived epidemic in early 2020 changes nothing about that long-term growth narrative.
So, look past the noise. Understand that near-term coronavirus headwinds won’t last. And stick with LK stock for the long haul.
Percentage Off 52-Week Highs: -17%
Forward Price-Earnings Multiple: 34.3
Much like Alibaba stock, JD.Com (NASDAQ:JD) stock has been hit hard on concerns that widespread coronavirus fear will slow retail sales growth in China and therefore slow the e-commerce giant’s growth trajectory.
But, at the risk of sounding like a broken record, this “slowdown” won’t be much of a slowdown for JD. It will be bad for a few months. Then, things will get better come April. Also of note, it won’t hit the e-commerce segment that hard, since shopping online doesn’t put individuals at risk of getting sick. Indeed, consumers may actually shop more online for the foreseeable future as consumers act cautiously in the few months after the outbreak fades.
So, the negative fallout from the coronavirus outbreak on JD.Com’s core operations won’t be that big, will be constrained to one quarter, and could even provide a second and third quarter tailwind.
At the same time, economic conditions in China are improving thanks to easing trade tensions and easing central bank policy. Labor markets also remain healthy. Consequently, once coronavirus concerns ease, consumer spending trends should rebound to healthy levels, and JD.Com should get back to firing on all cylinders.
Plus, the stock is as cheap as it’s ever been at just 36-times forward earnings. That’s dirt cheap for a huge growth e-commerce company like this with rapidly expanding margins.
Percentage Off 52-Week Highs: -57.6%
Forward Price-Earnings Multiple: N/A
Next to Luckin Coffee, another Chinese stock which has been hit hard by coronavirus concerns is Nio (NYSE:NIO). The Chinese premium electric vehicle (EV) maker has seen its stock plunge on fears that consumers won’t buy new cars so long as they are scared of getting sick.
That makes sense. Chinese consumers aren’t leaving their homes, letting alone buying new cars. The auto market in China has consequently come to a standstill in February.
But, Chinese consumers will only remain scared of getting sick so long as the outbreak is still “breaking out”. Right now, the outbreak is dying down. Within the next few months, it’s quite likely the outbreak in China will be over. As that happens, coronavirus fears will fade, and consumers will start buying new cars again.
Once they do, a bunch of them will buy EVs, both because there has been a lot of EV hype in China recently and because Chinese government officials did not cut EV subsidies this year. This sustained demand will will keep the current uptrend in NIO’s sales volume alive and well for the next few quarters.
So long as that uptrend remains alive and well, NIO stock will keep powering higher, especially since the company just secured 10 billion yuan in financing from Hefei’s city government, thereby shoring up the balance sheet and easing liquidity concerns.
Percentage Off 52-Week Highs: -31%
Forward Price-Earnings Multiple: N/A
Shares of Chinese social video platform Bilibili (NASDAQ:BILI) — often dubbed the YouTube of China — have actually surged amid the coronavirus outbreak.
Year-to-date, BILI stock is up almost 40%.
Why the huge rally? Because amid the outbreak, Chinese consumers have been cooped up at home. While at home, those consumers have been bored out of their minds, turning to at-home entertainment options like Bilibili to entertain themselves. Presumably, then, Bilibili usage and engagement has actually gone up over the past few weeks.
As goes engagement, so goes Bilibili’s platform, since it’s built on the back of subscription dollars and ad revenue.
So, the coronavirus actually hasn’t been a bad thing for Bilibili. If anything, it’s been a good thing. That’s why BILI stock is up — not down — in 2020.
It is quite likely that, as China’s economy rebounds in the coming months, Bilibili’s already good growth trends, only get better. As they do, this red hot stock, will only get hotter.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango was long LK and NIO.