3 Chinese Growth Stocks to Buy in January

While the rest of the world is still struggling to recover from  pandemic-driven public health travails and economic damage, China has been quite successful on both those fronts. As the first major economy to recover from the pandemic, China has been witnessing a rise in its GDP. And, unlike the U.S., China’s economy and the stock markets are in sync. The bull run by Chinese growth stocks should…

last well into 2021 backed by above-average economic growth and a potentially favorable trade environment with a Joe Biden Administration.

The world’s second largest economy is on a strong footing with industrial production and retail sales increasing 7% and 5%, respectively, in November from a year earlier. Investors’ confidence in Chinese stocks can be seen in Invesco Golden Dragon China ETF’s (PGJ) 15.3% gains over the past month, as compared to SPDR S&P 500 ETF Trust’s (SPY) 3.4% returns.

Goldman Sachs expects China to witness one of the strongest and fastest macro recoveries in 2021 among major economies. Because  Chinese tech giants are currently facing regulatory investigations,  relatively smaller companies are well-positioned to grab market share. Companies like Vipshop Holdings Limited (VIPS – Get Rating), 21Vianet Group, Inc. (VNET – Get Rating), and Origin Agritech Limited (SEED – Get Rating) we think are strategically positioned to capitalize on these developments.

Vipshop Holdings Limited (VIPS – Get Rating)

VIPS is a leading Chinese online discount retailer of a variety of brands. It operates through four segments: Vip.com, Shan Shan Outlets, Internet Finance, and Others. The company provides apparel, home appliances, furnishings and decor, toys and games, and cosmetics through online platforms such as vip.com and vipshop.com. In addition, VIPS offers services in warehousing, logistics, research and development, technology development, and consulting.

On November 2, VIPS announced the appointment of Pengjun Lu as  Co-Chief Technology Officer . His extensive experience in big data and personalization in China’s internet industry should  enable the company to  improve customer experience on VIPS’  platform.

VIPS’ revenue has grown 18.2% year-over year to RMB23.20 billion in the third quarter ended September 30, 2020. Net income has risen 42.1% from the prior-year quarter to RMB1.20 billion, while gross profit rose 15.3% from the year-ago value to RMB38.30 billion. The number of active VIPS customers increased 36% year-over-year to 43.40 million over this period.

The company’s revenue grew at a CAGR of 12.1% over the past three years, while net income grew at a CAGR of 34% over this period. VIPS’s EPS grew at a CAGR of 29.2% over the past three years. This reflects the company’s robust growth potential over the past few years.

A consensus EPS estimate of $0.34 for the current  quarter, ending March 31, 2021, represents  a 61.9% improvement year-over-year. VIPS has an impressive earnings surprise history as well; it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.94 billion for the current quarter represents a 47% improvement from the same period last year. The stock has gained 97% over the past year.

How does VIPS stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Overall POWR Rating.

The stock is also ranked #8 of 103 stocks in the China industry.

21Vianet Group, Inc. (VNET – Get Rating)

Founded in 1999, VNET is a Chinese carrier and cloud-neutral Internet data center services provider. It operates in two segments – Hosting and Related Services, and Managed Network Services. The company offers its services to internet companies, government entities, blue-chip enterprises, and small- to mid-sized enterprises. In addition, the company provides hosting and related services to house servers and networking equipment in its data centers.

In late October, VNET announced that its Board of Directors had approved several promotions to strengthen its senior leadership team to further assure  VNET’s growth. The executive changes should continue to elevate the company’s technical capabilities and integration of its  business groups.

Earlier last year, VNET announced the  exercise of underwriters’ options to purchase an additional…

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