TAL - The 3 Most Undervalued Chinese Stocks to Buy in July 2024
2024-07-09 06:00:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
The iShares MSCI China ETF (NASDAQ: MCHI ) has surged by more than 8% in the past six months, suggesting that investors have gained renewed optimism about Chinese stocks. Despite having my reservations, I share investors’ current sentiment as I believe China’s leading emerging market status provides it with an edge, meaning systematic support is likely.
Although highly lucrative at times, Chinese stocks can face severe drawdowns due to opaque government policies, unconsolidated industries and fierce sectoral competition. As such, I decided to embark on a journey to find three undervalued Chinese stocks with asymmetrical upside potential. Methodologically, my screening process emphasized fundamental aspects, valuation metrics and technical analysis. Moreover, I assessed the prevailing market sentiment to ensure alignment.
If you’re as bullish about Chinese stocks as I am, then here are three worth considering.
Alibaba (BABA)
Alibaba’s (NYSE: BABA ) stock looks like a classic “buy the dip” opportunity, whereby a divergence between the company’s fundamentals and stock performance has occurred.
BABA stock has shed about 10% of its market value in the past twelve months. Nevertheless, Alibaba’s operating performance remained robust. For example, it recently surpassed its fourth-quarter revenue estimate by $256.74 million , proving its secular value proposition.
Furthermore, Alibaba’s segmental growth remains intact. As communicated by its fourth-quarter results, Alibaba’s e-commerce segment grew by an additional 45.1% year-over-year (YoY), while its logistics segment advanced by 29.8%. The aforementioned segments comprise a hefty part of Alibaba’s revenue mix, providing a reasonable basis to conclude that Alibaba’s growth story remains intact.
It must be known that BABA stock isn’t a risk-free asset. The company faces numerous challenges, such as trade disputes between the Eastern and Western parts of the world. Additionally, Alibaba’s operating profit margin of 8.5% seems quite narrow. Nevertheless, given the above-mentioned factors, I think BABA stock presents a buying opportunity, especially as it currently possesses a forward price-to-earnings (P/E) ratio of merely 8.91x!
PDD Holdings (PDD)
You’ve come to the right place if you’re looking for a diversified e-commerce player with proven results. PDD Holdings’ (NASDAQ: PDD ) e-commerce portfolio functions in critical end markets, including agriculture, food and beverages, household appliances and apparel, to name a few. Although debatable, I believe the firm’s broad end-market exposure presents an abundance of synergies, allowing for sustainable top-line growth and cost structure improvements.
PDD Holdings is a firm favorite at Goldman Sachs . The bank recently upgraded the stock to Buy from its previous Hold rating based on PDD Holdings’ resilient revenue growth and comprehensive unit economics. I agree with Goldman’s stance. In fact, the company’s unitary efficiency is echoed by PDD stock’s return on common equity ( ROE ) ratio of 46.3% .
Furthermore, PDD Stock’s capital markets-based prospects look in good shape. For instance, PDD stock has a price-to-earnings-growth ratio of only 0.52x, suggesting it is a growth-at-a-reasonable price ( GARP ) opportunity. Additionally, PDD stock’s relative strength index ( RSI ) is hovering in the low 40s , adding substance to a bullish argument from a technical vantage point.
TAL Education Group (TAL)
TAL Education Group (NYSE: TAL ) is one of the pioneers of online education in China. The company was founded in the early 2000s , but it only sprung to life recently amid a boom in technological uptake among primary and secondary school learners.
Even though it has embedded risks, key indicators suggest that TAL stock is an excellent buy after declining by approximately 15% in the past six months. For example, the company recently delivered a telling fourth-quarter earnings report that communicated $429.6 million in revenue, a 59.7% year-over-year increase. Moreover, TAL maintains a strong cash position of around $3.3 billion, allowing it to scale its capacity in the following years.
Lastly, TAL stock has a price-to-sales ratio of 4.4x , which I deem low, given the company’s illustrious growth and its exposure to an industry set to expand at an annualized rate of 15.65% until 2028.
After considering its salient features, I conclude that I am bullish about TAL stock’s prospects!
On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for cross-asset research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve obtained his CFA Charter on April 26, 2024, and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace don’t constitute financial advice. However, they form an interesting juxtaposition between mainstream opinion and objective theory, allowing readers to benefit from unbiased commentary. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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