Last year, the world's second-largest economy expanded by 5.2%. Despite exceeding its targeted growth rate of 5%, this represented its slowest annual growth pace since 1990. Additionally, China is grappling with significant challenges, including a distressed property market, lackluster exports, and deflationary pressures.
However, the recent data on industrial and retail sales, coupled with the dedication of Chinese officials to implement reforms aimed at restructuring the country's development, has somewhat restored investor confidence in the Chinese economy.
Given the backdrop, scooping up the shares of three fundamentally strong China stocks, JD.com, Inc. (JD), China Automotive Systems, Inc. (CAAS), and Youdao, Inc. (DAO), might be a wise move now.
The world's second-largest economy demonstrated a robust recovery in the initial two months of the year, positioning it for a first-quarter growth rate of around 5%.
While China's property sector continued to struggle, as evidenced by a 9% decline in real estate investments during the first two months of 2024, retail sales surged by 5.5%, surpassing the forecasted 5.2% increase, and fixed asset investment grew by 4.2%, exceeding analysts' expectations of 3.2%.
Additionally, industrial production saw a notable rise of 7%, outperforming the anticipated 5% growth. Meanwhile, infrastructure investment increased by 6.3%, and manufacturing investment surged by 9.4% during the same period.
Buoyed by the promising signs in industrial output and retail sales recovery, Premier Li unveiled an ambitious economic growth target of around 5% for 2024, mirroring last year's goal.
In light of these encouraging developments within the Chinese economy, let’s now examine the fundamentals of the featured China stocks in detail, beginning with number three:
Stock #3: JD.com, Inc. (JD)
Headquartered in Beijing, internet retailer JD offers computers, communication, and consumer electronics products, as well as home appliances; and general merchandise products.
On March 4, JD declared a quarterly dividend of $0.76 per ADS, payable to its ADS holders on or around April 29, 2024. Its annual dividend translates to a 2.9% yield on the prevailing price level, while its four-year average dividend yield is 1.14%.
JD’s trailing-12-month asset turnover ratio of 1.77x is 77.4% higher than the 1.00x industry average. Likewise, the stock’s trailing-12-month cash per share of $6.46 is 143% higher than the $2.66 industry average.
For the fiscal fourth quarter, which ended on December 31, 2023, JD’s total net revenues increased 3.6% from the prior-year quarter to $43.11 billion. During the same quarter, the company’s attributable non-GAAP net income amounted to $1.19 billion and $0.75 per ADS, up 9.9% and 10.2% from the year-ago value, respectively.
Analysts expect JD’s revenue for the fiscal 2024 first quarter (ending March 2024) to increase 2.3% year-over-year to $35.79 billion, while its EPS for the ongoing quarter is projected to come in at $0.66. Moreover, the company has topped its revenue and EPS estimates in each of the trailing four quarters, which is excellent.
JD’s revenue has grown at CAGRs of 13.3% and 18.6% over the past three and five years, respectively. Meanwhile, its EBIT and total assets have improved at CAGRs of 39.2% and 14.2% over the past three years, respectively.
JD’s shares have surged 11.2% over the past month to close the last trading session at $26.36.
JD’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Value. In the 40-stock China industry, it is ranked #12. Click here to see JD’s ratings for Momentum, Stability, Sentiment, and Quality.
Stock #2: China Automotive Systems, Inc. (CAAS)
Headquartered in Jingzhou, CAAS manufactures and sells automotive systems and components in China and internationally. In addition, the company offers after-sales services, and research and development support services as well.
CAAS’ trailing-12-month CAPEX/Sales of 3.78% is 23.4% higher than the 3.06% industry average. Likewise, the stock’s trailing-12-month cash per share of $3.59 is 34.9% higher than the $2.66 industry average.
For the nine-month period that ended on September 30, 2023, CAAS’ net product sales increased 4.1% year-over-year to $417.19 million, while its gross profit came in at $69.09 million, up 18.4% from the year-ago value.
During the same period, the company’s net income and EPS rose 69.1% and 61.8% year-over-year to $30.60 million and $0.89, respectively. Also, the company reported a comprehensive income of $21.84 million versus a comprehensive loss of $18.33 million in the same period last year.
CAAS’ EPS is projected to increase by 10% annually over the next five years. Moreover, the company surpassed its EPS estimates in three of the trailing four quarters, which is promising.
In addition, over the past three years, its revenue and total assets have grown at CAGRs of 12.2% and 1.9%, respectively.
The stock has gained 1.6% over the past month to close the last trading session at $3.25.
CAAS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Growth, Stability, and Sentiment. Within the same industry, it is ranked #6. Click here to see the other ratings of CAAS for Momentum and Quality.
Stock #1: Youdao, Inc. (DAO)
Headquartered in Hangzhou, DAO is an internet technology company that provides online services in the field of content, community, communication, and commerce in China. It operates through three segments: Learning Services; Smart Devices; and Online Marketing Services.
DAO’s trailing-12-month gross profit margin of 51.35% is 43% higher than the 35.91% industry average. Likewise, the stock’s trailing-12-month asset turnover ratio of 2.73x is 173.7% higher than the 1.00x industry average.
For the fiscal fourth quarter, which ended on December 31, 2023, DAO’s total net revenues increased 1.8% year-over-year to $208.53 million, while its gross profit came in at $104.06 million.
During the same quarter, the company’s attributable net income and net income per ADS increased significantly from the prior-year quarter to $7.90 million and $0.07, respectively.
The consensus revenue estimate of $858.33 million for the fiscal year ending December 2024 reflects a 14.5% year-over-year improvement. Meanwhile, its EPS for the same period is projected to increase by 86.7% year-over-year.
The company has surpassed its revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters, which is impressive.
In addition, DAO’s revenue has grown at CAGRs of 10.6% and 28.7% over the past three and five years, respectively.
Over the past six months, the stock has climbed 3.7% to close the last trading session at $3.89.
It’s no surprise that DAO has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. In the same 40-stock industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have DAO’s ratings for Momentum, Stability, and Quality. Get all DAO ratings here.
What To Do Next?
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JD shares were trading at $27.16 per share on Wednesday morning, up $0.80 (+3.03%). Year-to-date, JD has declined -5.99%, versus a 9.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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