5 Best Chinese Stocks To Buy And Watch: Shanghai Lockdowns To Ease

Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? JD.com (JD), NetEase (NTES), Li Auto (LI), Xpeng (XPEV) and BYD Co. (BYDDF).

China is the world’s most-populous nation and the second-largest economy, with a booming urban middle class and amazing entrepreneurial activity. Dozens of Chinese stocks are often among the top performers at any given time, across an array of sectors.

Covid Shutdowns

Shanghai began opening up physical stores in stages starting Monday, after reporting no community spread outside of quarantine zones on Monday. U.S.-listed Chinese stocks soared on Tuesday. That’s after surging Friday on signals that restrictions could ease in a few days likely, along with the broader stock market rebound.

China’s ongoing Covid shutdowns, notably in Shanghai, have taken a massive toll on production, supply chains and spending. Shanghai cases are falling, and manufacturing activity has resumed under strict controls.

China EV sales for Li Auto, Xpeng and Nio (NIO) showed sharp declines in April vs. March due to shutdown-related impacts. That wasn’t a surprise. However, EV giant BYD managed to increase April sales slightly vs. March, surging vs. a year earlier.

China could extend EV subsidies due to expire on Dec. 31, Reuters reported on May 18. No decision has been made about extending subsidies, or at what levels.

Regulatory Hopes

China’s Politburo released statements on April 29 suggesting that a broad crackdown on internet platforms will finally be easing.

However, Beijing has made signals over the past year that a tech crackdown was ending, only to renew strict measures and penalties.

U.S. and Chinese regulators appear to be trying to find a resolution. But the SEC continues to add Chinese companies that are in danger of delisting. JD.com, Nio and Xpeng were added to that list on May 4. That, along with the broader market meltdown, triggered big losses in those stocks.

Best Chinese Stocks Across Many Industries

As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:

In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world’s biggest auto market.

Several Chinese financial firms or brokerages are listed in the U.S.

  • Futu Holdings (FUTU)
  • Up Fintech Holding (TIGR)
  • 360 DigiTech (QFIN)
  • Noah Holdings (NOAH)

Several China stocks are in solar power.

  • Daqo New Energy (DQ)
  • JinkoSolar (JKS)

For-profit education Chinese stocks are a notable nontech sector.

  • New Oriental Education (EDU)
  • TAL Education (TAL)
  • 17 Education & Technology Group (YQ)
  • Gaotu Techedu (GOTU), formerly known as GSX Techedu.

Don’t forget stocks in other fields, such as riding-hailing outfit Didi Global (DIDI), beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).


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China Stock Investing Via ETFs

One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.

KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S. listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times-leveraged ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times-leveraged ETF shorting Hong Kong’s biggest companies.)

Stock Market Trend Key

As always, investors should be following the overall stock market trend, adding exposure in confirmed uptrends and paring exposure or going fully to cash in corrections or bear markets. Right now the stock market is in a confirmed uptrend, but is under pressure after the sharp May 18 sell-off.


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Best China Stocks To Buy: Key Ingredients

Focus on the best stocks to buy and watch, not just any Chinese company.

IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.

Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.

Start with companies with strong earnings growth, such as Pinduoduo. If they’re not profitable, at least look for rapid revenue growth as with Xpeng. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.

Chinese stocks in general are out of favor now, though a few are starting to bounce back.


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Best Chinese Stocks To Buy Or Watch

Company Ticker Industry Group Composite Rating
Li Auto LI Auto Manufacturers 73
NetEase NTES Computer-Software Gaming 92
BYD BYDDF Auto Manufacturers n.a.
JD.com JD Retail-Internet 46
Xpeng XPEV Auto Manufacturers 19

So let’s analyze these five top China stocks: Li Auto stock, NetEase stock, BYD stock, Xpeng stock and JD.com stock.

Li Auto Stock

Li Auto is one of several Chinese electric-vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).

The company is flirting with being profitable consistently, at least on an adjusted basis.

On May 10, Li Auto reported 7 cents per ADR adjusted vs. a modest loss a year earlier. Revenue leapt 167.5% to $1.51 billion, slightly beating.

But it sees second-quarter deliveries of 21,000-24,000 from its one current model, the Li One SUV. The Li One is actually a hybrid, with a small gasoline engine to extend its range.

That’s would be up 19.5%-36.6% vs. a year earlier, but down from 31,176 in Q1.

On May 1, Li Auto reported it delivered 4,167 Li One hybrid SUVs, down 62% vs. March’s 11,034 and 25% below a year earlier. Many suppliers were shut down, severely affecting Li’s production.

The new Q2 forecast implies May-June deliveries will improve, but still lag Q1’s pace.

Li Auto also forecast Q2 revenue of $972.3 million-$1.11 billion, up 22%-40% vs. a year earlier but far below consensus.

Later this year, Li Auto will introduce a larger hybrid SUV, the L9.

Shares sold off hard in March to their lowest levels since last May. Li stock rebounded in late March but then tumbled back below its 50-day line.

Li have bounced following Q1 earnings on May 10. Shares hitting now hitting resistance the 50-day line.

The automaker has a dual listing on the Hong Kong exchange.

Li stock has a 73 IBD Composite Rating out of a best-possible 99.

Bottom line: Li Auto stock is not a buy.

NetEase Stock

NetEase is a Chinese mobile gaming giant.

It’s profitable, but growth has been spotty in recent quarters amid a Chinese government crackdown on video games.

NetEase earnings surged 333% in the fourth quarter vs. a year earlier, with revenue growth picking up to 27%.

Q1 earnings are due Tuesday.

NetEase stock, like many other Chinese internets, has struggled over the past year. NTES stock peaked at 134.33 in February 2021 but tumbled to 77.79 last August. Shares rallied to 118.19 on Nov. 22, right as the Nasdaq peaked, then dropped back below its 50-day and 200-day lines.

Shares hit a 22-month low on March 14, but since then have rebounded.

Shares reclaimed key moving averages in early May, then sold off with the market. NetEase stock is back above its 50-day line. Shares have reclaimed their 200-day line, a key resistance level for the past several months.

The RS line for NTES stock is at its best levels since November.

Bottom line: NTES stock is not a buy.

BYD Stock

BYD is the biggest pure-play Chinese EV maker; it makes electric cars and buses and many hybrids. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.

Notably, BYD is profitable, in sharp contrast to Li Auto, Nio and Xpeng Motors, though capital spending surged in 2021 to power the company’s ongoing expansion.

BYD reported first-quarter net income jumped 241% in local currency terms vs. a year earlier. That was in line with a recent forecast for 174%-300% growth. Revenue rose 63%.

On May 3, the automaker reported it sold 106,042 new energy vehicles (NEV), up 1% from March’s 104,878 and 313% vs. a year earlier. Passenger vehicles totaled 105,475. Of those, BYD sold 57,403 all-EVs, up 256% vs. a year earlier. Plug-in hybrid sales skyrocketed 439% to 48,072 in April.

Hybrid sales have surged thanks to a new, fuel-efficient DM-i system that provides substantial battery range.

As of the end of March, BYD has ended production of its traditional gas-powered cars.

The automaker is conservatively targeting 1.5 million in sales, or up to two million if supply constraints ease.

BYD giant largely avoided production hiccups amid China’s Covid lockdowns, helped by its in-house battery and chip operations. However, BYD reportedly suspended production at its Changsha plant in the central Hunan province over environmental concerns.

BYD launched the Yuan Plus in China on Feb. 19. The compact SUV will launch in Australia this summer as the Atto 3. The Yuan Plus also will enter the Singapore market. Exports are likely to be a big part of BYD’s future, as production continues to ramp up sharply.

Among BYD’s upcoming models is the Seal sedan, with pre-sales starting May 20. Deliveries will start in a few months. . The Seal is a Model 3 rival, with longer range but $10,000 chepaer. Unlike many Tesla rivals, when BYD launches a new model, it quickly produces in volume.

A successful Seal launch would not only provide another boost to rapid sales growth, but also could burnish BYD’s brand as it expands into new markets.

BYD on April 10 officially launched more-advanced hybrid versions of its BYD Han, with an electric-only range of up to 150 miles on a China standard. The flagship BYD Han already comes in all-electric and an older hybrid form. The all-electric Han also got a substantial upgrade, including a big increase in range.

Like Nio and Xpeng, BYD began selling EVs in Norway in late 2021, starting with the Tang SUV.

Toyota reportedly will make a small EV car for the China market in late 2022, using BYD Blade batteries. It’s possible that BYD will play a big role in Toyota’s new, sweeping EV push in the coming years. Also, BYD is starting to license its DM-i hybrid system to other EV makers.

Stocks plunged to a multimonth low on March 14 but have rebounded powerfully. Shares jumped on April 4 back above the 50-day. The EV and battery giant has generally held the 50-day line since then, trading relatively tightly over the past several weeks, before a bullish upside reversal in the week ended May 13.

BYDDF stock now has a 48%-deep cup base going back to November.

On May 17, BYD jumped above a mini-consolidation within that deep cup base. Shares are moving above their 200-day line. Ideally, BYD would rally further, then form a handle within the cup base.

The relative strength line is at a 52-week high on a weekly chart, nearly hitting all-time levels.

BYD is listed in Hong Kong and trades over the counter in the U.S. So the BYDDF stock chart is prone to lots of little gaps up and down.

Warren Buffett’s Berkshire Hathaway is a longtime investor in BYD. Cathie Wood has been increasing Ark Invest’s small stake in recent weeks.

Bottom line: BYD stock is not a buy, but watch this emerging leader.


Tesla Vs. BYD: China Rival Seizing EV Crown


Xpeng Stock

Xpeng makes the G3 small SUV, the P7 sedan and the smaller P5 sedan. On Nov. 12, Xpeng unveiled the G9 SUV, saying it’s targeted for international markets. The fast-charging SUV is due to launch in Q3 2022.

The EV maker has now opened P5 reservations in Norway, Denmark, Sweden and the Netherlands. Xpeng already sells some G3 SUVs and P7 sedans in Norway.

Xpeng earnings are due before Monday’s open.

On May 1, Xpeng reported April deliveries of 9,002 vehicles, down 42% vs. 15,414 in March, as Covid shutdowns affected suppliers, hampering deliveries. But deliveries did rise 75% vs. a year earlier.

Shares in March skidded to their worst levels since late 2020, not far from all-time lows. XPEV stock surged in mid-March, but then faded again.

Shares rose modestly following April deliveries, but has sold off in recent days, back toward March lows.

Bottom line: Xpeng stock is not a buy.

JD.com Stock

JD.com is a Chinese e-commerce giant.

The online retailer reported better-than-expected first-quarter earnings on May 17, with revenue up 18%. Results largely came before the massive Shanghai Covid lockdowns.

JD.com stock peaked at 108.29 on Feb. 17, 2021, and bottomed at 61.65 on July 25. Shares hit a multimonth high in November, but then tumbled until early January.

In March, JD.com stock fell to its worst levels since May 2020. JD stock surged in late March but have fallen back again.

JD.com founder Richard Liu on April 7 stepped down as CEO. He remains chairman.

On May 4, JD.com said it would pay out a special dividend of $1.26 per ADR after signaling a payout in late April.

JD.com stock jumped on May 17, moving toward its 50-day line. Shares fell back the next session.

Bottom line: JD.com is not a buy.

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

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