2 Chinese Stocks to Consider Buying on News of a U.S./China Summit

Though the relationship between the world’s top two economies, the United States and China, has remained rocky over the past several years, a planned virtual summit by the two nations by the end of this year might ease tensions to an extent. Therefore, we believe Chinese stocks NetEase, Inc. (NTES) and Weibo Corporation (WB) are well-positioned to soar in price in the coming months. Let’s discuss.

A virtual summit by U.S. President Joe Biden and Chinese President Xi Jinping, which is expected to be held before the end of this year, could address issues at the heart of  U.S.-China rivalry. Scott Kennedy of the Center for Strategic and International Studies believes that although this summit indicates only a “limited thaw” in the bilateral relationship, it could help stabilize U.S.-China competition and help avoid misunderstandings.

Chinese technology stocks surged in price last week, driven by the news of the planned virtual summit between the two nations and a sense of relief as U.S. policymakers averted a Congressional debt ceiling standoff to avoid a default. In addition, Mark Haefele, chief investment officer at UBS Global Wealth Management, said there could be investment opportunities on both sides, especially in the areas of capital markets, technology, cybersecurity, and climate change, even if there is a minimal material improvement in the relationship between the two countries. So this could be an opportune time for investors to bet on Chinese stocks.

We think Chinese stocks NetEase, Inc. (NTES) and Weibo Corporation (WB) could be good bets now because they are well-positioned to generate solid returns on a better U.S.-China relationship.

NetEase, Inc. (NTES)

Headquartered in Hangzhou, China, NTES is a technology company that offers online gaming, communication, intelligent learning, commerce, Netease mail, news, and other products services. The company operates in three segments: Online Games Services; Youdao; and Innovative Businesses and Others. It caters to domestic and international markets, including Japan, the United States, Europe, and Southeast Asia.

In May, NTES unveiled new games and content for more than 60 products. This should allow the company to deliver a vast entertainment experience to its users and actively enhance its brand recognition.

NTES’ net revenues for the second quarter, ended June 30, 2021, increased 12.9% year-over-year to RMB20.52 billion ($3.18 billion). The company’s gross profit grew 14.3% from its year-ago value to RMB11.19 billion ($1.73 billion). Its operating profit came in at RMB3.76 billion ($582.39 million). Also, the company’s net income amounted to RMB3.48 billion ($538.73 million) during this period.

A $13.34 billion consensus revenue estimate for the fiscal period ending December 2021 represents a 16.9% increase year-over-year. The company’s EPS is expected to increase 20.5% in the current year. In addition, it surpassed consensus EPS in three of the trailing four quarters. 

NTES’ strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has a B grade for Value and Sentiment. We’ve also graded NTES for Growth, Stability, Quality, and Momentum. Click here to access all of NTES’ ratings. NTES is ranked #5 of 60 stocks in the China industry.

Weibo Corporation (WB)

Founded in 2009, WB is a China-based social media platform that allows people to create, distribute, and discover content online. The company operates in two segments: Advertising and Marketing Services; and Value-Added Services. It also enables its customers to promote their brands and conduct marketing activities.

During the second quarter, ended June 30, 2021, WB’s net revenues increased 48.3% year-over-year to $574.47 million. The company’s income from operations grew 82% from its year-ago value to $193.24 million. Its net income came in at $80.99 million during this period. Also, its EPS amounted to $0.35 for the same period.

WB’s revenue for its fiscal year 2021 is expected to be $2.22 billion, representing a 31.6% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to grow 25.2% in the current year. 

WB’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Growth, Value, and Quality.

In addition to the POWR Rating grades I’ve just highlighted, one can see WB’s ratings for Momentum, Stability, and Sentiment here. The stock is ranked #2 in the China  industry.

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NTES shares were trading at $95.48 per share on Friday morning, up $0.02 (+0.02%). Year-to-date, NTES has gained 0.27%, versus a 20.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Priyanka Mandal

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.


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