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Should Investors Buy China's FANG Stocks?

Tracey Ryniec
Updated
American Internet and social media stocks are some of the hottest stocks out there but should investors be looking at their Chinese equivalents too?

Welcome to Episode #104 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey is joined by Zacks Editor Ryan McQueeney to discuss China and its Internet and social media stocks.

It’s no secret that Tracey has not been a big fan of investing in Chinese stocks over the last several years. She was among those burned by the Chinese scam companies about 6 years ago with companies that, it turned out, didn’t really exist.

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But last week, she bought her first Chinese stock in her own personal portfolio in 6 years.

Making the Case for China

1.      The Chinese economy has been weaker than the official economic data has indicated. While technically not in a recession, for an economy used to hyper-growth, it sure looked like one. But it appears like the Chinese economy may be coming out of that slow period.

2.      The Chinese government has picked its winners in every industry and sector, including the Internet and social media stocks. These “winners” have the full backing of the government, which allows them to dominate the huge Chinese market.

3.      Transparency appears to be better among these huge companies versus the smaller Chinese companies that went public just a decade ago. After all, Alibaba was the largest IPO of all time.

For investors who already own the American social media companies, why not add in the world’s most populous country and buy the Chinese equivalent?

China’s FANG Stocks

1.      Baidu (BIDU) is the Google of China. It gets ignored by investors but sales are expected to be up double digits this year and next and it trades with a forward P/E of just 35.

2.      Alibaba (BABA) needs no introduction. But it’s also not a pure online shopping platform as it also owns video platform Youku, which it bought in 2015 for $4 billion, as well as Alipay. It also has made a push into expansion outside of its Chinese home market, specifically into India and Southeast Asia.

3.      JD.com (JD) is the lesser known of China’s online shopping sites. Shares aren’t cheap, as they’re trading at 86x forward earnings but you should see sales growth over 25% this year and next.

4.      Tencent (TCEHY) owns the Facebook of China, which is called WeChat. As of the second quarter, the company was approaching nearly a billion users on that platform. It is also big in smart phone gaming as well as other hot areas like video and AI research.

5.      Sina Corporation (SINA) is the smallest of these companies with a market cap of just 7.6 billion. It’s an online media company which is the parent of Weibo. Weibo is the Twitter of China. In the second quarter, gross margins were 74%. It saw strong advertising demand on the Weibo platform.

As Tracey can attest to, there are certain risks to investing in Chinese stocks. Tracey and Ryan discuss the regulatory issues and possibility of government interference, among other risks.

But with double digit sales growth expected for the next few years, it’s hard to stay away from this group of stocks completely.

What else should investors know about the Chinese Internet and social media stocks?

Find out the answer to all of these questions and more on this week’s podcast.

The Other Market Edge Podcast on China

In August 2017, Tracey talked with one of Zacks millennial interns who had just spent a year studying in China.

What are Chinese Millennials buying? Where are they shopping? Where are they eating out? And how are they ordering? Is cash still king or are online payments the norm in China’s biggest cities?

Find out the answers to these questions and more in this fascinating discussion on China.

You might change the way you think about investing there.  

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[In full disclosure, the Chinese stock that Tracey recently bought for her personal portfolio was TCEHY. Find out why she chose that one on the podcast.]

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JD.com, Inc. (JD) : Free Stock Analysis Report
 
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
 
Sina Corporation (SINA) : Free Stock Analysis Report
 
Baidu, Inc. (BIDU) : Free Stock Analysis Report
 
Tencent Holding Ltd. (TCEHY) : Free Stock Analysis Report
 
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