Top 3 China Stocks That Are Long-Term Winners

The last year and a half have been a rough period for Chinese stocks listed on the NYSE. The ongoing trade war between the U.S. and China coupled with privacy issues surrounding these firms contributed to a lot of volatility. Companies were also worried they might be delisted in the U.S. stock exchanges and filed for secondary listings in Hong Kong.

However, while there are some challenges impacting Chinese stocks several companies are growing revenue and earnings at an enviable pace. China is still one of the fastest-growing economies in the world and the increase in purchasing power of the country's rapidly growing middle-class indicates its growth story remains intact.

Here we look at three such stocks that should increase investor wealth substantially in the upcoming decade.

Alibaba is a top Chinese tech stock

One of the top tech stocks for your portfolio is Alibaba (BABA), an internet heavyweight with a market cap of $717 billion. Alibaba is one of the largest e-commerce companies in China. It is also a digital-payments giant and gaining traction in the public cloud space.

Despite the company’s massive size, investors can brace themselves for a multi-year double-digit revenue growth trajectory due to the several secular tailwinds for Alibaba. The COVID-19 pandemic has accelerated the shift towards online shopping which in turn has driven demand for digital payment technologies as well.

This has helped Alibaba to increase sales by 34% in the June quarter and by 30% in the September quarter, on a year-over-year basis. Its annual active customers touched 757 million while mobile monthly active users rose to 881 million in Q3.

Further, Alibaba stock is trading at an attractive valuation and is cheaper compared to peers such as Amazon and Shopify.

Baozun earnings will double by 2021

Baozun (BZUN) is a company similar to Shopify (SHOP) and provides website creation tools, marketing, and several other ancillary services such as customer management and warehousing that helps businesses establish an online presence. Several product companies are eying the highly lucrative Chinese market to boost online sales and are leveraging the Baozun platform for the same.

Baozun stock has a market cap of just over $3 billion indicating a forward price to sales multiple of 2.45x and a price to earnings ratio of 32.5x. We can see the stock is undervalued given its estimated earnings growth of 50.6% in 2020 and 38% in 2021. Analysts also expect Baozun to increase sales by 30% in 2020 and 28.7% in 2021.

China is the largest e-commerce market and accounted for over 50% of global online sales in 2019. According to e-Marketer, the country’s e-commerce spending will rise from $1.93 trillion in 2019 to $4.1 trillion in 2023, giving it enough room to drive top-line growth.

JD.com is up 142% in 2020

The third and final stock on the list is JD.com (JD). This is another stock that has managed to crush broader markets in 2020 and is up a stellar 142% year-to-date. In the first six months of 2020, JD increased sales by 28% and operating income rose over 100% year-over-year to $1 billion, indicating high operating leverage.

JD.com has an integrated business model that includes an e-commerce platform as well as a robust logistics network. At the end of the June quarter, its annual active customers stood at 417 million, up 30% compared to the prior-year period.

Similar to other companies here, JD stock is also trading at a reasonable valuation despite its impressive returns this year. It has a market cap of $140 billion indicating a price to sales multiple of just 1.3x and a price to earnings multiple of 59x. Comparatively, its earnings are forecast to rise by 52% in 2020 and 46% in 2021.

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BABA shares were trading at $260.21 per share on Monday morning, down $0.63 (-0.24%). Year-to-date, BABA has gained 22.68%, versus a 13.88% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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