China is aiming to boost economic growth through a series of stimulus measures to revive manufacturing, consumption, and foreign investments. Amid this backdrop, investors could consider buying fundamentally strong China stocks JD.com, Inc. (JD) and PDD Holdings Inc. (PDD).
Despite facing challenges such as a weak property market, weaker spending, loss of consumer confidence, rising local debt, and high youth unemployment, the higher-than-expected first-quarter economic growth of 5.3% brings optimism for China's 2024 GDP target of around 5%.
China's growth outlook looks positive as it is expected to be fueled by strong domestic consumption and investments. Standing Committee of the National People’s Congress, Zhao Leji, believes that China’s import and export of goods will exceed $32 trillion in the next five years.
China’s consumption shows signs of resurgence with retail sales of consumer goods in the first quarter rising 4.7% year-over-year. Meanwhile, online retail sales increased 12.4% year-over-year. Although consumer spending will likely grow moderately in the second quarter, it will likely accelerate in the second half.
Considering these encouraging trends, let’s discuss the fundamentals of the two China stock picks, starting with the second choice.
Stock #2: JD.com, Inc. (JD)
JD provides supply chain-based technologies and services in the People's Republic of China. The company offers computers, communication, and consumer electronics products, as well as home appliances and general merchandise products.
In terms of forward non-GAAP P/E, JD’s 8.03x is 46.1% lower than the 14.89x industry average. Its 4.94x forward EV/EBITDA is 46.5% lower than the 9.23x industry average. Likewise, its 6.94x forward EV/EBIT is 47.6% lower than the 13.24x 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 RMB306.08 billion ($42.28 billion). Its non-GAAP income from operations rose 7.5% year-over-year to RMB7.79 billion ($1.08 billion).
For the same quarter, the company’s non-GAAP net income attributable to the company’s ordinary shareholders amounted to RMB8.42 billion ($1.16 billion) and RMB5.30 per ADS, up 9.9% and 10.2% from the year-ago value, respectively.
Street expects JD’s revenue for the quarter ended March 31, 2024, to increase 1.7% year-over-year to $35.58 billion. Its EPS for the quarter ending June 30, 2024, is expected to grow 3.9% year-over-year to $0.77. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 2.9% to close the last trading session at $25.42.
JD’s POWR Ratings reflect a positive outlook. It has an overall rating of B, equating 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, Value, and Sentiment. It is ranked #12 out of 39 stocks in the B-rated China industry. To see JD’s Momentum, Stability, and Quality ratings, click here.
Stock #1: PDD Holdings Inc. (PDD)
PDD is a multinational commerce group that owns and operates a portfolio of businesses. It operates Pinduoduo, an e-commerce platform that offers products in various categories, and Temu, an online marketplace.
In terms of forward non-GAAP PEG, PDD’s 0.57x is 60.9% lower than the 1.45x industry average. Its 9.48x forward EV/EBIT is 28.4% lower than the 13.24x industry average. Additionally, its 13.48x forward non-GAAP P/E is 9.5% lower than the 14.89x industry average.
PDD’s revenues for the fourth quarter ended December 31, 2023, increased 123.2% year-over-year to RMB88.88 billion ($12.28 billion). Its non-GAAP operating profit increased 111.9% from the year-ago value to RMB24.58 billion ($3.40 billion).
The company's non-GAAP profit attributable to ordinary shareholders rose 110.4% year-over-year to RMB25.48 billion ($3.52 million). Also, its non-GAAP earnings per ADS stood at RMB17.32, up 107.7% from the year-ago value.
For the quarter ended March 31, 2024, PDD’s EPS and revenue are expected to increase 48.2% and 98.2% year-over-year to $1.45 and $10.56 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, PDD’s stock has gained 68.9% to close the last trading session at $114.29.
PDD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality and a B for Growth and Momentum. It is ranked #9 in the same industry. In total, we rate PDD on eight different levels. Beyond what we have stated above, we have also rated PDD for Value and Stability. Get all the ratings of PDD here.
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PDD shares were trading at $112.06 per share on Tuesday morning, down $2.23 (-1.95%). Year-to-date, PDD has declined -23.41%, versus a 6.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
What Makes Pinduoduo (PDD) and JD.com (JD) Stand out as Prime China Stock Investments Today? StockNews.com
