The biggest business news that has come out of China in the past three months has been majorly about its regulators’ crackdown on big tech companies, passing several regulations without prior warning and slapping fines and bans on them. On August 10, the government revealed a five-year plan to impose even stricter regulations on a plethora of businesses and the broad Chinese economy, which has sent Chinese stocks tumbling.
Tech giants like Alibaba Group (ticker: BABA), entertainment and tech leader Tencent Holdings (ticker: TCEHY), and ride-hailing company Didi Global (ticker: DIDI), among others, have been on the receiving end of this strict scrutiny from the Chinese regulators, and have seen their stock prices fall, wiping away billions of dollars from their market valuations.
These companies are listed on the Shanghai Stock Exchange in mainland China and the Hong Kong Stock Exchange; hundreds of them are also listed on the U.S. stock market. Whatever happens to their performance in China and Hong Kong also affects their performance in the U.S. stock market.
Even with these regulations and share plummets, these companies have struggled to stay afloat. Some have continued to post positive figures in their earnings reports, so they have received “Buy” or equivalent ratings from analysts.
Here, we will look at those three best Chinese stocks that could be an excellent addition to your portfolio in the current market conditions.
Li Auto Inc. (ticker: LI)
Li Auto, also known as Li Xiang, is a Chinese Electric Vehicle (EV) manufacturer with headquarters in Beijing and has its shares listed in the U.S. under the ticker LI on the Nasdaq Stock Exchange.
In its earnings report of the second quarter of the 2021 fiscal year (Q2 FY2021), the company indicated that it made an adjusted loss of 1 cent a share, but that was a slightly better performance than expected by consensus analysts. Also, the company earned total revenue of $780.4 million in the quarter, which was a 159% growth year over year. This was earned through huge sales of the company’s current model, the Li One SUV, a hybrid of electricity and gasoline. In Q3 FY2021 guidance, the automaker expects to deliver between 25,000 and 26,000 vehicles.
Two weeks ago, Li Auto reported that it delivered 9,433 Li One SUVs, which is a rise of 248% from what it delivered 12 months ago.
The company’s stock has had ups and downs since its Initial Public Offering (IPO) debut in July 2020. LI peaked at $47.70 on November 24, 2020, and fell miserably to $15.98 in May this year, almost hitting its IPO price of $11.50. The company’s share’s recovered to $36.66 on July one, but have since been trading below that, currently going for $29.74 a share. Li has a market capitalisation of $30.33 billion.
On August 12, 2021, the company became one of the Chinese companies with a dual listing when it debuted on the Hong Kong Stock Exchange under the ticker HKG: 2015, and it announced that it would introduce a new hybrid SUV next year. Investor Business Daily (IBD), a stock research firm, gives LI a 57 57 IBD Composite Rating out of 99.
Nio Inc (ticker: NIO)
Nio is one of the most established Chinese EV start-ups. Headquartered in Shanghai, China, the company designs, manufactures and sells three EVs that include the ES8, the ES6 and the crossover EC6, and in 2022, the company will add one more EV to its production line, a high-end EV sedan named the ET7.
It is important to note that Nio is not yet profitable, but it has a robust and attractive revenue growth trend. In Q1 FY2021, Nio’s revenue surged 529% compared to last year at the peak of the coronavirus crisis in China. As has been the case in the broad EV industry, vehicle deliveries in the second quarter of the 2021 fiscal year have been slower than the prior quarter due to chip shortages. Nio has embarked on its expansion program into the European market, kicking off its ES5 SUV delivery to Norway.
Early this month, Nio reported that it delivered 5,880 vehicles in August, an increase of 48% compared to a year ago. However, this was below 7,931, the total number of vehicles the company delivered in July. Due to chip shortages and supply chain disruptions, Nio cut its delivery target in Q3 FY2021 from 23,000 and 25,000 to 22,500 and 23,500 vehicles.
On January 11, 2021, Nio saw its stock peak at $66.99 a share but pulled back more than half to $30.73 on May 13 before recovering to $55.13 on July 13. Nio is currently trading at $38.03 a share, with a market cap of $62.31 billion.
Nio is planning to follow in the footsteps of Li Auto and have a dual listing. Nio has an IBD Composite Rating of 44.
BYD Company (ticker: BYDDF)
BYD is a big industry player that makes electric vehicles, buses, and numerous hybrids. BYD also makes EV batteries, and its performance attracted long-time investment from investment guru Warren Buffet through Berkshire Hathaway.
Last Friday, BYD reported that the first half of the 2021 fiscal year (H1 FY2021) registered 29% less profit. The company said that the drop in its profits ($180 million, about 1.17 billion yuan) was due to increasing materials costs. However, BYD’s revenue soared 54% to $13.77 billion (89.1 billion yuan).
In Q2 FY2021, BYD sold 54,841 all-electric cars and 99,828 new energy vehicles, including hybrids and commercial vehicles. In July alone, the Chinese automaker sold 50,492 new energy vehicles, representing a growth of 171% compared to 12 months ago, and its EV sales also soared 109% after selling 24,996 EVs in the same month. In August, BYD’s new energy vehicle sales were 61,409, and its EV sales were 30,382. These sales represent a growth of 288% and 223%, respectively.
Unlike Li Auto and Nio, BYD is profitable. In January, its stock peaked at $35.94 but pulled back almost 52% to $17.41 on May 12, 2021. Currently, BYD is trading at $33.35 a share on Over the Counter (OTC) market in the U.S. It has a market cap of $110.46 billion. Chinese brokerage firm Huachang Securities projects BYD, also listed on the Hong Kong Stock Market, to sell 1 million vehicles in 2023.
Apart from those mentioned above, other popular Chinese stocks are worth checking out as both their technical and fundamental analyses see them having an upward movement. These include Sohu (ticker: SOHU), Weibo Corporation (ticker: WB), Alibaba Group (ticker: BABA). These companies are withstanding strict Chinese regulations and posting positive figures despite the ups and downs in their stock price.
PS: This is not investment advice. This article is intended for information purposes only. Stock prices quoted herein are subject to change at any time. We don’t own copyright for photos used.