3 main Chinese stocks to watch in April
Chinese stocks are likely not on many investors’ shortlists after the coronavirus pandemic has devastated that country’s economy in recent months. But the massive Asian nation is showing signs of being on the road to recovery. Official statistics show that China’s manufacturing activity resumed its expansion path in March. And the country’s transportation industry may soon follow.
Chinese companies face unique risks due to trade tensions and general geopolitical uncertainty. But maybe now is a good time to grab those stocks while prices are still low. For example, here are three Chinese stocks that could benefit from a Chinese economic rebound in April. Two of them, Trip.com Group (NASDAQ: TCOM) and China Eastern Airlines (NYSE: ZNH), are bets on the resumption of transport in China. The other, Alibaba Group (NYSE: BABA), is a bet on improving consumer confidence in the country.
Trip.com Group is the Chinese answer to Expedia Groupvarious travel related websites including Orbitz. The company is a travel service provider specializing in ticketing, reservations and tours, as well as hotel and transportation information aggregation. The journey started 2020 on a solid footing. Fourth-quarter 2019 revenue increased 15% (from $ 4.5 billion to $ 5.1 billion) year-over-year. And the net profit went from $ 161.7 million to $ 1 billion during the same period.
But the coronavirus pandemic has significantly damaged Trip’s near-term prospects as governments around the world instituted travel restrictions to slow the spread of the deadly COVID-19 disease.
Trip.com underperformed the broader market in 2020, down 25.9% year-to-date compared to a 13.4% drop in the S&P 500. But now that most of the bad news related to the coronavirus seems to be integrated – and the Chinese economy is coming back online – stock is a great way to bet on a rebound. Trip CEO Jane Sun believes the Chinese domestic travel market could return to normal within a few months. If she is right, the stock could increase.
2. China Eastern Airlines
China Eastern Airlines is China’s second-largest carrier, just behind rival China Southern Airlines. The company mainly transports passengers from its Shanghai hub to domestic and international destinations such as Abu Dhabi in the United Arab Emirates, New York and Los Angeles. It should come as no surprise to learn that the coronavirus pandemic has hit the stocks of China Eastern. Shares are down 33.5% year-to-date compared to a 13.4% drop in the S&P 500 during the same time frame.
With first quarter results expected on May 5, the company will likely report significant revenue declines due to travel bans to the United States and Europe on flights from China. But the Chinese travel industry, which accounts for most of China Eastern’s sales, is already showing signs of life.
According to the Civil Aviation Administration of China, the country’s aviation regulator, domestic flights in the country rose 20.5 percent in March. And while China Eastern predicts “significant uncertainty” for the whole of 2020, Asia remains one of the most promising markets for aviation. And China Eastern’s low valuation of just 0.3 times sales makes the stock a good fit for risk-tolerant investors to bet on a Chinese recovery.
3. Alibaba Group
For some investors, China’s transportation industry is too risky right now, and that’s okay. The country offers other opportunities in the fields of technology and e-commerce. Alibaba Group is one of the most convincing. Alibaba is China’s response to Amazon with its massive e-commerce platform and forays into cloud computing and digital media. Unlike most China-based stocks, Alibaba has outperformed the broader market, with stocks only falling 7.4% year-to-date, compared to a 13.4% drop in the S&P 500. during the same period.
Alibaba has entered 2020 on a solid footing with better than expected third quarter FY20 results (Alibaba third quarter ends December 31). Sales soared 38%, from $ 17.1 billion to $ 23.2 billion, and net income rose from $ 4.5 billion to $ 7.2 billion year-on-year ‘other.
Alibaba is unique because, unlike the other companies mentioned on this list, its fiscal third quarter ends when the calendar year ends. That means the impacts of the coronavirus pandemic will show up on its fourth quarter tax results, which are expected to be released on May 20. Alibaba has not provided guidance for the fourth quarter, but the company’s diverse business model is expected to help protect it from virus-related shocks and set up to benefit from a rebound in the Chinese economy.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.