The three major US stock indices finished last week with more than 6% negative returns. Investor concerns over the second wave of the coronavirus, mixed corporate earnings, and uncertainties over the upcoming presidential election, have led to a sell off in U.S. stocks.
Giant tech companies reported mixed results last month, with Twitter (TWTR) and Facebook (FB) seeing slow user growth, Apple (APPL) having low iPhone sales and Amazon (AMZN) incurring higher costs due to COVID-19. Additionally, the growing number of coronavirus cases in the United States and the implementation of new lockdown measures in Europe have increased investor anxiety. However, some Chinese equities rallied during the same period, which means investors preferred to bet on the economy’s steady recovery amid uncertainties in domestic markets.
While China’s GDP is expected to grow 1.9% this year, growth could accelerate to 8.2% next year. And China continues to be the only major economy in the world to have seen growth so far this year. Plus, with Biden’s more likely to win the White House, recent polls show investors expect it to be a boon to the world’s second-largest economy. In particular, the two countries could have a better trade relationship if Biden comes to power.
China aims to emphasize technology and focus on quality rather than the pace of growth in the coming years, according to the 14e five-year plan released by the country last month. US investors should therefore consider betting more on Chinese stocks than on stocks of US companies at this time.
NIO Inc. (NIO), IQIYI, Inc. (IQ), Vipshop Holdings Limited (VIPS) and Li Auto Inc. (LI) have performed extremely well in addressing concerns related to the US economy, and are positioned to achieve additional earnings in the months to come.
NIO Inc. (NIO)
Based in Shanghai, China, NIO is an emerging player in the electric vehicle (EV) market. Besides the design, manufacture and sale of electric vehicles, the company is also known for its Battery as a Service (BaaS) provided for energy exchange. The company sells electric vehicles under the brands EP9, EVE and ES8.
NIO’s total revenue increased 146.5% year over year to $ 493.4 million for the second quarter ended June 2020. The gross profit margin of the company’s vehicles increased historically increased 9.7% year over year, primarily due to lower purchase prices for certain materials and lower unit manufacturing costs. NIO set a record delivering 12,206 vehicles in the three months ending September, representing a 154.3% year-over-year growth.
Analysts expect NIO’s revenue to grow 145.6% for the quarter ended September 2020 and 79.3% for 2021. The company’s EPS is expected to increase 52% in 2020 and 33%. 3% in 2021. Growing EV demand in a world concerned about climate change, positions the action well for solid growth going forward. The stock hit its 52-week high of $ 32.20 on October 29e, gaining 660.7% since the start of the year.
October 29e, for the first time, NIO’s mass-produced vehicle exceeded 5,000 units per month. The company also won the tender for the annual Chinese government procurement project in Beijing for 2020 to 2022. The story of NIO’s profit surprise looks impressive, with the company missing the consensus estimate in one. of the last four quarters.
How does NIO compare to POWR classifications?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for industry rank
A for the overall POWR rating
You can’t ask for better. The stock is also ranked # 4 out of 115 stocks in Chinese industry.
IQIYI, Inc. (IQ)
Founded in 2009, IQ is one of the leading providers of online entertainment services in China. A subsidiary of Baidu Holdings Limited (BIDU), IQ and its subsidiaries offer internet videos, online games, live broadcasts, online literature, entertainment, e-commerce and a social media platform. It sets itself apart with its cutting-edge technology platform powered by advanced AI, big data analytics, and other core proprietary technologies.
Total IQ revenues increased 4% year-over-year to $ 1.0 billion for the second quarter ended June 2020. Member services revenues increased 19% year over year to reach $ 572.7 million. The company focuses on high quality, which has also been translated into the bottom line. Content distribution revenues increased 66% year over year to $ 121.8 million.
Analysts expect IQ revenue to grow 7.6% in 2020 and 14.1% in 2021. The company’s EPS is expected to grow 14.5% in the current year, from 41%. % next year and at a rate of 5.8% per annum for the next five years. The story of IQ’s earnings surprise looks impressive, with the company missing the consensus estimate in only one of the past four quarters.
On October 5, IQ released its first original 13-part film, which will be released in 2020 and 2021 as part of its original film initiative. Last month, the company also announced the upcoming releases of more than 200 shows at its annual iJOY conference held in Shanghai. The stock has gained more than 17% since the start of the year.
IQ’s POWR ratings reflect this promising outlook. It has an overall “Buy” rating with an “A” for commercial quality, peer rating and industry rank, and a “B” for purchase and retention rating. In the Chinese group, it is ranked No. 17.
Vipshop Holdings Limited (VIPS)
VIPS is one of the leading online discount retailer for various brands in China. Dominating the field of flash sales, the company operates through Vip.com, Shan Shan Outlets, Internet Finance and others. VIPS also offers warehousing, logistics, product sourcing, research and development, technology development and consulting services. It is backed by Chinese tech giants Tencent and JD.com (JD).
VIPS ‘strong second quarter results (ended June 2020) were driven by its strong merchandising capability. The gross value of goods increased 9% year over year. Total net income increased 6% year over year to $ 3.4 billion. The number of active customers increased 17% year over year to 38.8 million. With the economy recovering, the total number of orders also increased 15% year-over-year to reach 170.5 million.
Analysts expect VIPS revenue to grow 14.4% for the quarter about to be announced, 9% this year and 13.7% next year. The company’s EPS is expected to grow 18.3% in the current year, 20.3% next year, and at a rate of 2.3% per year over the next five years.
Last month, VIPS appointed Mr. David Cui as the new CFO. In the words of Mr. Eric Shen, President and CEO of VIPS, “Going forward, we will continue to focus on improving our product offerings, working more effectively with our suppliers to provide our customers top-notch clothing assortments. ” VIPS has an impressive history of earnings surprise, with the company beating consensus EPS estimates in each of the four quarter-ends. The stock has gained more than 51% since the start of the year.
It’s no surprise that VIPS is rated “Buy” in our POWR rating system. It also has an “A” for commercial grade and industry rank, and a “B” for purchase and retention grade and peer grade. Among the Chinese group, it is ranked No. 19.
Li Auto Inc. (LI)
Based in Beijing, China, LI is a newcomer to the Chinese energy vehicle market. Through its subsidiaries, the company designs, develops, manufactures and sells intelligent electric sport utility vehicles (SUVs). It is also the first to successfully market extended range electric vehicles in China. Founded in April 2015, the company went public in July 2020. LI closed Friday’s trading session at $ 20.17, gaining 16% over the past month.
LI delivered 3,692 Li ONE in October, which represents a sequential increase. Company Expected to Release Third Quarter 2020 Financial Results on November 13e. Analysts expect LI’s revenue and EPS to increase 97.3% and 50% respectively next year.
LI announced the adoption of NVIDIA’s (NVDA) Orin System on Chip (SoC) last month. The company will be the first OEM to equip its vehicles, the full-size, full-range, premium intelligent SUV, due to launch in 2022. The stock has gained 22.5% since its IPO. As part of our POWR rating system, LI received a “B” rating for industry ranking.
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NIO shares were trading at $ 33.39 per share on Monday afternoon, up $ 2.81 (+ 9.19%). Year-to-date, NIO has gained 730.60%, compared to a 3.90% increase in the benchmark S&P 500 over the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in economics in college and has a passion for writing, which has led to her career as a research analyst. More…