China Stocks: Five To Buy And Watch

China is the world’s No. 2 economy and home to dozens of companies that trade in the U.S. Right now, JD.com (JD), Pinduoduo (PDD), Canadian Solar (CSIQ), Daqo New Energy (DQ) and Trip.com (TCOM) are China stocks worth watching or potentially buying.

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It’s been a tough couple of years for Chinese stocks. The Covid pandemic, and Beijing’s zero-Covid policy, have slammed the economy. Meanwhile, regulatory crackdowns vs. technology and data-centric firms such as Alibaba (BABA), Tencent (TCEHY) and NetEase (NTES) have been a major headwind. U.S. trade tensions are a concern, with the White House barring shipments of key chip technology to China, along with tariffs and other curbs on Chinese goods.

However, the tech crackdown seems to have eased, while China appears ready to relax its severe Covid restrictions. There are always risks that these hopeful signs will not pan out, or take far longer than expected.

But for now, Chinese stocks are roaring back. Along with price gains, volume has picked up, providing further evidence of a change of character. Along with China-specific bullishness, there’s a confirmed stock market rally that’s been ongoing for the past several weeks.

While the current top China stocks to buy or watch are dominated by e-commerce and solar plays, don’t forget EV makers such as Nio (NIO), Li Auto (LI) and global giant BYD (BYDDF). All are taking on Tesla (TSLA) in the world’s largest EV market, with BYD racing past Tesla in total sales.

Tencent, NetEase and Baidu (BIDU) are other internet giants to follow.

Top Chinese Stocks To Buy Or Watch

JD.com Stock

JD.com is China’s No. 2 e-commerce firm, behind only Alibaba.

It’s been consistently profitable for years, with annual growth since 2018. Earnings growth has accelerated for the past two quarters, soaring 80% in Q3. But revenue growth has slowed for six straight quarters, to just 1%, amid Covid shutdowns and related disruptions.

A crackdown on big internet platforms, though falling harder on Alibaba and Tencent, still weighed on JD.com stock.

JD.com stock peaked at 108.29 in February 2021, tumbling to a Covid low of 33.17 on Oct. 24, 2022. Since then shares have run higher, clearing the 50-day in early November, and it has just closed above its 200-day line for the first time in almost a year.

That’s in contrast to BABA stock, which has not yet regained its 200-day line. But it’s also lagging PDD stock significantly.

Bottom line: JD.com stock is not a buy.

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Daqo New Energy Stock

Daqo New Energy is a leading low-cost maker of high-purity polysilicon for the solar photovoltaic industry.

Daqo earnings surged from 64 cents a share in 2019 to $9.89 in 2021 and an estimated $27.27 in 2022. EPS is seen falling to $21.02 in 2023.

Daqo earnings growth has slowed from 524% in Q1 to 167% in Q2 and just 9% in Q3. Sales growth has slowed from 400% to 182% and a still-strong 108% in Q3.

There’s a boom in solar demand in China and worldwide, with generous new U.S. tax incentives. But the U.S. also imposes significant tariffs on Chinese solar products. The U.S. government has accused some Chinese companies of illegally evading the tariffs by rerouting through other Asian nations.

DQ stock peaked at 77.18 on July 7, but broke down in September, finally bottoming at 41.03 on Oct. 24. Shares bounced back, retaking their 50-day and 200-day lines in late November. But Daqo stock has fallen back below those levels.

Bottom line: DQ stock is not a buy.

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Canadian Solar Stock

While technically based in Ontario, Canada, Canadian Solar is largely a Chinese company. It makes and installs solar modules as well as developing and building solar power plants.

Canadian Solar’s earnings per share fell in 2019, 2020 and 2021, but are expected to more than double in 2022, with a 68% gain in 2023. EPS rose 494% and 167% in the latest two quarters.

CSIQ stock hit a 52-week high 47.69 on Aug. 18, but then tumbled to 27.38 on Oct. 24. Shares rebounded, but have fallen below their 50-day and 200-day lines.

Bottom line: CSIQ stock is not a buy.

Pinduoduo Stock

Pinduoduo is the No. 3 e-commerce player in China, after Alibaba and JD.com. But it’s outperformed its larger rivals in recent months, with its bargain focus appealing to consumers in a tough economy.

Sales growth has accelerated for the past three quarters, from 5% to 50%. Pinduoduo earnings spiked 256% in Q3, reported on Nov. 28.

PDD stock peaked at 212.60 in February 2021 then crashed to 23.21 on March 15, 2022. But since then, Pinduoduo stock has trended higher, in a volatile fashion.

PDD stock gapped out of a 47%-deep base on Nov. 28 following earnings, spiking 31% for the week to a 52-week high.

Bottom line: PDD stock is not a buy.

Trip.com Stock

Trip.com is a China-based online travel firm, operating under several brands and in many countries. China is easing travel quarantine rules with signs of broader Covid policy changes seen as a boon for China travel.

Trip.com has a profitable history, though it reported losses in Q1 and Q2, with Q2 revenue down 34% vs. a year earlier. But profits are seen rebounding, then surging in 2023.

Trip.com earnings for the third quarter will be released on Dec. 14.

TCOM stock hit a nine-year low of 14.29 in March. Since then Trip.com stock has rebounded. A late August breakout attempt failed, with shares retreating to 19.25. But then it rebounded in volatile fashion. TCOM shares rebounded from the 50-day line on Nov. 28 and have kept running, finally clearing resistance around 30-31 on Nov. 30.

Shares are now slightly extended from that area, with earnings looming.

Bottom line: TCOM stock is not a buy.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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