China is shifting from high-speed growth in GDP to a focus on advanced technology and manufacturing, aiming to enhance the quality and sustainability of economic development.
Hence, investors could consider buying fundamentally sound China stocks Alibaba Group Holding Limited (BABA), Ping An Insurance (Group) Company of China, Ltd. (PNGAY), and Tencent Holdings Limited (TCEHY) as the economy rebounds.
Earlier this year, China announced an ambitious goal of reaching 5% economic growth in 2024. Today, nearly seven months into the year, economists and government officials say they are optimistic that China can achieve its goal.
Policies that boost domestic consumption reduce reliance on exports and encourage technological innovation further propel industrial growth. Initiatives like “Made in China 2025” focus on upgrading the manufacturing sector, enhancing productivity, and promoting high-tech industries.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best China industry stocks, starting with the third choice.
Stock #3: Alibaba Group Holding Limited (BABA)
Based in Hangzhou, China, BABA provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage internationally with their users and customers.
In terms of the trailing-12-month EBIT margin, BABA’s 14.03% is 78.7% higher than the 7.85% industry average. Its 15.04% trailing-12-month levered FCF margin is 197.2% higher than the 5.06% industry average. Likewise, the stock’s 7.38% trailing-12-month net income margin is 65.4% higher than the 4.46% industry average.
During the quarter that ended June 30, 2024, BABA’s revenue increased 3.9% year-over-year to RMB234.16 billion ($33.23 billion). Its income from operations was RMB35.99 billion ($5.11 billion) for the quarter. The company’s non-GAAP net income and EPS came in at RMB40.69 billion ($5.77 billion) and RMB2.05, respectively.
Analysts expect BABA’s revenue and EPS for the fiscal year (ending March 2025) to increase 10.4% and 3.6% year-over-year to $143.65 billion and $8.91, respectively. Moreover, BABA’s stock has gained 35.4% over the past month to close the last trading session at $112.84.
BABA’s POWR Ratings reflect its outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum, Sentiment, and Quality. It is ranked #13 in the 38-stock B-rated China industry.
Beyond what is stated above, we’ve also rated BABA for Growth, Stability, and Value. Get all BABA ratings here.
Stock #2: Ping An Insurance (Group) Company of China, Ltd. (PNGAY)
Based in Shenzhen, PNGAY provides financial products and services for insurance, banking, asset management, and technology businesses in China. It operates in Life and Health Insurance; property and Casualty Insurance; Banking; Trust; Other Asset Management; and Technology segments.
For the three-month period, which ended on March 31, 2024, PNGAY’s total revenue amounted to RMB275.89 billion ($39.15 billion), while its insurance revenue grew 2.8% from the prior-year period to RMB136.85 billion ($19.42 billion). The company’s profit for the period amounted to RMB45.05 billion ($6.39 billion). In addition, its attributable EPS came in at RMB2.03.
Analysts expect PNGAY’s revenue for the year ending December 2025 to increase 5.2% year-over-year to $83.05 billion.
Shares of PNGAY have gained 61.5% over the past six months to close the last trading session at $13.92.
PNGAY’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
PNGAY has an A grade for Growth and a B for Momentum. It is ranked #7 in the same industry.
In addition to the POWR Ratings highlighted above, one can access PNGAY’s ratings for Value, Sentiment, Quality, and Stability here.
Stock #1: Tencent Holdings Limited (TCEHY)
Based in Shenzhen, China, TCEHY is an investment holding company that provides value-added services (VAS), online advertising, fintech, and business services globally. The company operates through VAS; Online Advertising; FinTech and Business Services; and Other segments.
The stock’s trailing-12-month EBIT margin and EBITDA margin of 30.44% and 33.80% are 229% and 85.6% higher than the 9.25% and 18.21% industry averages, respectively. Its trailing-12-month ROTA of 9.23% compares with the industry average of 1.27%.
In the second quarter that ended June 30, 2024, TCEHY’s total revenues increased 8% year-over-year to RMB161.12 billion ($22.87 billion). Its gross profit grew 21.3% from the prior year’s quarter to RMB85.90 billion ($12.19 billion). Its non-IFRS operating profit came in at RMB58.44 ($8.29 billion), up 26.9% from the year-ago value.
In addition, non-IFRS profit attributable to equity holders of the company grew 52.6% year-over-year to RMB57.30 billion ($8.13 billion). Its non-IFRS earnings per share for profit attributable to equity holders of the company rose 85.3% from the previous year’s quarter to RMB6.01.
Street expects TCEHY’s revenue and EPS for the third quarter (ended September 2024) to increase 12.5% and 37.6% year-over-year to $23.99 billion and $0.88, respectively. Further, the company has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 50.7% over the past six months and 54.6% over the past year to close the last trading session at $59.43.
TCEHY’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TCEHY has an A grade for Stability and a B for Sentiment. It is ranked #6 out of 38 stocks within the same industry.
Beyond what is stated above, we’ve also rated TCEHY for Growth, Value, Momentum, and Quality. Get all TCEHY ratings here.
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About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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