We recently published a list of 7 Most Profitable Chinese Stocks To Invest In. In this article, we are going to take a look at where JD.com (NASDAQ:JD) stands against the other most profitable Chinese stocks to invest in.
China’s Economic Growth
According to a report by the IMF, the economy of China is expected to grow 5% in 2024 and 4.5% in 2025, marking an upward revision of 0.4 percentage points from the previous April projections. This growth is largely driven by robust Q1 GDP data and recent policy measures. However, the IMF warns of potential risks on the downside, citing a prolonged and more severe-than-expected adjustment in the property sector and increasing fragmentation pressures.
In terms of inflation, the IMF forecasts a moderate increase in core inflation to 1% in 2024, with growth expected to slow down to 3.3% by 2029 due to demographic challenges and slower productivity growth. China’s economy is facing weak consumer spending due to a prolonged housing slump and high youth unemployment. In an effort to diversify revenue streams, Chinese tech firms are focusing on artificial intelligence (AI). However, there is intense global competition which limits the effectiveness of this approach.
The government needs to implement policies that boost spending and restore consumer confidence. The recent slowdown in economic growth and rising geopolitical tensions have led to a significant outflow of foreign investment, with nearly $15 billion pulled out of the country in the second quarter of 2023. Some foreign car manufacturers have also scaled back or withdrawn their investments due to the rapid shift towards electric vehicles in China. As a result, China’s balance of payments has turned negative, which could potentially result in the first annual net outflow of foreign investment since 1990.
Buy Everything Related to China, Says Billionaire David Tepper
Billionaire investor, David Tepper, founder of Appaloosa Management, has expressed an extremely bullish opinion on his investments, particularly in China. In an interview on CNBC on September 26, he stated that he is increasing his exposure to Chinese stocks, citing the country’s efforts to stimulate its economy. Tepper believes that China’s plans to inject $142 billion of capital into top state-owned banks and implement positive policies will boost the economy and lead to a surge in Chinese stocks. As a result, he is “buying everything” related to China.
Tepper’s strategy is not limited to individual Chinese stocks, as he is also investing in Chinese ETFs. He believes that these ETFs offer a convenient way to gain exposure to a basket of Chinese companies. Tepper’s bullishness on China is not without risk, as he acknowledges that there are still challenges facing the country’s economy. However, he believes that the potential rewards outweigh the risks and is willing to take on that risk.
In contrast, Tepper is less enthusiastic about the US market, citing valuation concerns. He believes that the US market is not as attractive as the Chinese market, and is therefore allocating more of his portfolio to Chinese stocks. However, he still owns significant positions in US companies.
As China navigates its economic challenges, the government will need to strike a balance between stimulating growth and addressing the issues that are hindering consumer spending and investment. However, David Tepper’s move to increase his exposure to Chinese stocks and ETFs reflects investor confidence in the country’s economic recovery and growth potential.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in China by market cap. From that list, we narrowed our choices to 7 stocks with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A wide and imposing view of a supply chain distribution center, illustrating the company’s technology capabilities.
JD.com (NASDAQ:JD)
TTM Net Income: $4.31 Billion
5-Year Net Income CAGR: 38.36%
Number of Hedge Fund Holders: 59
JD.com (NASDAQ:JD) is a leading Chinese e-commerce company that specializes in retailing consumer electronics, apparel, and household products. In addition to its e-commerce platform, the company has a diverse range of operations, including logistics, marketing services, and property classifieds, as well as other innovative technology initiatives.
JD.com (NASDAQ:JD) is making significant investments in upgrading its third-party merchant platform with the goal of achieving a more optimized product mix that will propel stronger revenue growth and enhance profit margins. By doing so, the company is positioning itself for long-term success and competitiveness in the e-commerce market, ultimately benefiting its overall performance and sustainability. The company is also using cutting-edge technologies such as drones and AI to enhance its logistics and supply chain capabilities. Ariel Investments stated the following regarding JD.com (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfilment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
JD.com (NASDAQ:JD) has demonstrated exceptional financial growth, with a net income of $4.31 billion for the twelve months ending June 30, representing a significant 37.07% year-over-year increase and a 5-year net income compound annual growth rate (CAGR) of 38.36%, which is a testament to the company’s ability to consistently deliver strong financial performance.
Overall JD ranks 1st on our list of most profitable Chinese stocks to invest in. While we acknowledge the potential of JD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.