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4 Chinese Stocks (Not Named NIO) to Buy in February

While China’s tech giants are facing strict regulatory supervision because of their alleged unfair competition, other Chinese stocks have been able to capitalize handsomely on the Chinese economy’s rapid recovery from the coronavirus pandemic. As the country’s economy continues to rebound, we recommend investing in NetEase (NTES), China Biologic Products (CBPO), Cango (CANG), and China Distance Education (DL). The companies, we think, are strategically positioned to gain in the coming months.

China’s gross domestic product (GDP) grew 2.3% in 2020, making it the only major economy to generate growth last year. In fact, thanks to the rapid recovery of the world’s second-largest economy from the coronavirus pandemic, China’s GDP grew 6.5% in the fourth quarter of 2020. Also, over the past few years, China’s companies have been able to improve their production quality, which has created greater demand for the country’s  products and services globally.

While Chinese tech giants are facing regulatory challenges at home and abroad, specifically in the U.S., this has not scared of investors, whose interest in some Chinese stocks is undaunted because the country is a major engine of global growth and is armed with healthy levels of  domestic capital. Investors’ interest in Chinese stocks is reflected in SPDR S&P China ETF’s (GXC) 46.8% gains over the past year, as compared to the S&P 500’s 15.2% returns.

Because the Biden administration is expected to approach the U.S./Sino trade relationship with “some strategic patience,” we expect some degree of normalcy returning to the relationship going forward.

So, at this juncture, we think it could be wise to bet on stocks like NetEase, Inc. (NTES), China Biologic Products Holdings, Inc. (CBPO), Cango Inc. (CANG), and China Distance Education Holdings Limited (DL).

NetEase, Inc. (NTES)

Primarily an internet technology company, NTES provides online services focused on content, community, communication, and commerce mainly in China. In recent years, NTES has expanded into international markets that include Japan and North America. The company operates through three segments — Online Games Services, Youdao, and Innovative Businesses and Others.

For the third quarter ended September 30, 2020, NTES’ revenue climbed 27.5% year-over-year to $2.75 billion, driven primarily by strong and steady contributions from its online games services. Online game services, which accounted for more than 74% of the NTES’ total revenue, increased 20.2% year-over-year. Its gross profit increased 25.6% year-over-year to $1.46 billion, and its net income increased 76.4% year-over-year to $441.59 million. Its EPS of $0.82 surpassed a consensus estimate by 110.3%.

Analysts expect the company’s revenue to increase 36.7% for the quarter ended December 31, 2020 and 18.8% in 2021. NTES’ EPS is expected to grow 3.1% for the quarter ending March 31, 2021 and 19.6% in 2021. NTES has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.

In December, NetEase Cloud Music announced that a concert by TFBOYS held on its platform on August 22, 2020 had broken the Guinness World Record for the most viewed paid concert. The business also announced a new "Music Talent" initiative in December.

NTES began  selling China’s most prestigious liquor brand, Kweichow Moutai, in October, on its e-commerce platform operated by its subsidiary NetEase Yanxuan. The stock has gained 72.5% over the past year to close Friday’s trading session at $114.99. NTES has gained more than 20% so far this year.

NTES’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B which equates to Buy in our proprietary rating system. NTES has a B grade for Momentum, Growth, and Stability.

In total, we rate NTES on 8 different levels. Beyond what we stated above, we have also  given NTES grades for Value, Sentiment, Quality and Industry. Get all the NTES ratings here.

China Biologic Products Holdings, Inc. (CBPO)

Founded in 2002, CBPO is a leading fully integrated plasma-based biopharmaceutical company in China. The company manufactures and sells  human  plasma products. CBPO has a product portfolio with more than  20 plasma products and other biopharmaceutical products across nine categories.

The company’s sales increased 24.7% sequentially to $138.54 million for the third quarter ended September 30, 2020. Its total sales for biopharmaceutical products increased by 29.8% sequentially to $126.56 million as result of its increases in sales of albumin, coagulation factor, and placenta polypeptide products. Its net income increased 10.8% sequentially to $39.54 million, yielding non-GAAP EPS of $1.39, which increased 25.2% sequentially.

Analysts expect CBPO’s revenue to increase 11% in 2021. The company’s EPS is expected to grow 30.2% for the quarter ended December 31, 2020, 11.3% in 2021 and at a rate of 12.1% per annum over the next five years. The stock has gained 10.8% over the past six months to close Friday’s trading session at $117.85. It is currently trading just 1.2% below its 52-week high of $119.29, which it hit on November 30, 2020.

CBPO has called an extraordinary general meeting (EGM) of shareholders, to be held on March 1. It expects to decide at the meeting changing the its previously announced merger plan for  CBPO Holdings Limited (Parent) and CBPO Group Limited (Merger Sub).

CBPO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. CBPO has a B grade for Growth, Stability, and Sentiment.

In addition to the POWR Ratings grades I have just highlighted, you can see CBPO’s ratings for Quality, Values, Momentum, and Industry here.

Cango Inc. (CANG)

CANG provides an automotive transaction service platform, which connects dealers, financial institutions, car buyers and other industry participants. Founded in 2010, the company’s services consist primarily of automotive financing facilitation, automotive transaction facilitation, and aftermarket service facilitation. CANG is positioned to gain by leveraging its unique business model as the mobility market in China grows and evolve.

The company’s top line has increased 23.8% year-over-year to $64.06 million for the third quarter ended September 30, 2020. It was primarily driven by an increase in financing transactions and car trading transactions. CANG  increased the number of dealers it covers by  nearly 4% sequentially to 46,248. Its net income increased 1348.7% year-over-year to $260.60 million. And its non-GAAP net income per ADS increased 1162.8% year-over-year to $1.75.

Analysts expect the company’s revenue to increase 41.3% for the quarter ended December 31,  2020 and 26.4% in 2021. CANG’s EPS is expected to grow 700% for the quarter ending March 31, 2021 and at a rate of 11.1% per annum over the next five years. Moreover, CANG has an impressive earnings surprise history; the company beat consensus EPS estimates in each of the trailing four quarters.

The company celebrated its 10-year anniversary in Shanghai at the end of August 2020. In the prior month, CANG a received the "Best Auto Finance Risk Management Innovation Award" at the 5th Annual China Auto Finance International Summit. On a year-to-date basis, the stock has rallied 102.9% to close Friday’s trading session at $14.20.

It is no surprise that CANG has an overall rating of B, which equates to Buy in our POWR Ratings system. CANG has a Growth Grade of B and Sentiment Grade of A. In the 86-stock China group, it is ranked #7.

In total, we rate CANG on eight unique aspects. Beyond what we stated above, we also have given CANG grades for Momentum, Value, Stability, Quality, and Industry. Get all the CANG ratings here.

China Distance Education Holdings Limited (DL)

Founded in 2000 and listed on the NYSE, DL  provides online and offline education services and sells related products in China. The company operates primarily through three segments — Professional Education Services, Business Start-Up Training Services, and the Sale of Learning Simulation Software. DL currently operates 20 core websites.

For the fiscal year 2020 ended September 30, 2020, DL’s total net revenues increased 29.2% sequentially to $65.55 million. Its net revenue from online education services which accounted for 78.4% of total net revenue increased by 3.9% year-over-year to $51.4 million. Its gross profit increased 52.6% sequentially to $36.73 million, yielding a gross margin of 56%. And its net income increased 61.3% sequentially to $4.87 million and non-GAAP net income per ADS increased 100% sequentially to $0.18.

Analysts expect DL’s revenue to increase 11.6% this year and 9.7% next year. The company’s EPS is expected to grow 120% for the quarter ended December 2020, 12.2% this year and 119.6% next year. DL’s earnings surprise history is impressive, with the company missing the consensus estimate in just one of the trailing four quarters.

DL has called an extraordinary general meeting of shareholders to be held on February 26. At the meeting, the company’s shareholders will vote on  a proposal to approve a previously announced merger plan for Champion Distance Education Investments Limited (Parent), and China Distance Learning Investments Limited (Merger Sub). The stock has gained 12.4% over the past three months to close Friday’s trading session at $9.60.

DL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. DL has a Momentum Grade of B, Sentiment Grade of A, and Stability Grade of B.

Click here to see the additional POWR Ratings for DL (Growth, Value, Quality, and Industry).

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NTES shares were trading at $119.11 per share on Monday afternoon, up $4.12 (+3.58%). Year-to-date, NTES has gained 24.37%, versus a 0.75% rise in the benchmark S&P 500 index during the same period.



About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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