5 Chinese Stocks to Buy Now

The 5 Chinese Stocks You Must Own Right Now!

China is still not fully understood by most investors. Many believe China will have a hard landing, as they believe its days of high-flying growth are numbered. Others simply don’t trust the government in China. Some shy away from foreign risk. Whatever the reason, China presents an interesting number of challenges and opportunities.

There are now dozens of mutual funds and ETFs dedicated to investing in China’s impressive emerging market. This report will look at five stock ideas and present a few other investment ideas as we consider investing in China.

First, let’s look at some of the challenges. Like any investment, China has a number of of risks. The biggest risk of which is politics as the Chinese government tries to balance spending and keeping its citizens employed. As they overspend, they accumulate debt, which threatens economic growth.

2 Major Concerns with China:

  1. Increased debt could stop growth dead in its tracks.

When debt is poured in extreme fashion like we have seen from 2009-14, this can quickly flame out the growth fire China has seen over the past two decades.

  1. China is still pursuing an unsustainable economic model of debt to fund construction growth.

Private sector debt has skyrocketed from a ratio of 129% to GDP in 2008 to 214% in June 2013, as measured by Fitch Ratings. This will most likely create pressure for deleveraging, like we have seen in the U.S.

Many believe there is significant excess factory capacity in China that has been kept hidden by debt funding.   Once this capacity closes, it could have a major ripple effect, especially on smaller companies. It could result in loan losses as businesses go belly up, slash jobs and drag down business and consumer confidence.

A Great Opportunity Ahead

Even facing these risks, right now could be a great time to invest in China, especially for investors who are willing to take on some risk. China is looking very attractive from an investment perspective. There are obviously many things to consider as we assess the risks and rewards that go along with making an investment such as this.

Let’s take a look at seven opportunities in China…

Reason # 1: Valuation

As investors, we should be concerned with valuations. In real estate it is all about location. If you buy an incredible home in a poor location, there is a good chance you have less than optimal results. With stock investing it is all about price. If you invest in a great company at an outrageous price the odds of success diminish quickly.

When we look at China, I see attractive valuations. In fact, while scouring the Financial Times, I noticed that China has one of the cheapest stock markets in the world. Mainland China was trading at just 7.1 times earnings compared to 18.6 times here in the U.S. Even Hong Kong stocks trading at 11.7 times earnings are a better value play than the U.S. Chinese stocks are dirt-cheap and they have been trading sideways for years. Take a look at the iShares China Large-Cap (FXI), which measures 25 large cap Chinese companies:

Reason # 2: Prime Growth Opportunity!

The forecasted economic growth rate of China should be among the global leaders for at least the next decade. It has been averaging a 9% annual growth rate. This is nearly 3 times the growth rate of developed countries and I expect this trend to continue.

Reason # 3: A Rapid Change of Chinese Lifestyle

China is facing a critical economic structure adjustment following ten years of double-digit growth. This makes it a prime opportunity for investors who know which sectors to focus on in China.  The recent slow down in growth is allowing its citizens to catch up to China’s amazing historic growth.

China is on the paths of urbanization and in the process of an industrial revolution. Currently, core than half of its population lives in rural areas and it is expected that at least 700 million Chinese will change its lifestyle. This presents opportunities to capture changes in eating, drinking, dressing, traveling, housing, and technology. This presents many potential investment opportunities for diligent investors.

Here are my 5 Favorite Chinese Companies:

Stock Pick # 1: Vipshop Holdings Ltd. (VIPS)

Vipshop is an online discount retailer for brands. The Company offers branded products to consumers in China through flash sales on its vipshop.com website. It offers a wide selection of various famous branded discount products including apparel for women, men and children, fashion goods, cosmetics, home goods and other lifestyle products, through its website. Vipshop Holdings Ltd. is headquartered in Guangzhou.

Reasons to consider VIPS:

  • As Chinese incomes rise, spending will increase and should favor Vipshop earnings as shopping online has an uptrend.
  • VIPS’ balance sheet is free from long-term debt placing it in solid financial condition.
  • It is currently trading above both its 50-day and 200 day moving averages.

 

Financial Strength:          Positive

Valuation:                              Positive – Buy up to $225

Momentum:                          Positive

Risk:                                            Neutral

Earnings Trend:                  Positive

12-month price target:       $300

 

Stock Pick # 2: BitAuto Holdings (BITA)

Bitauto Holdings Limited (BITA) is engaged in providing internet content and marketing services for automotive industry in China. Its bitauto.com and ucar.cn websites provide consumers new and used automobile pricing information, specifications, reviews and consumer feedback. The Company operates in three segments- bitauto.com business, ucar.cn business and digital marketing solutions business. Bitauto.com business provides subscription services to new automobile dealers and advertising services to dealers and automakers on bitauto.com website.

Reasons to consider BITA:

  • As Chinese incomes rise, spending will increase and should favor BitAuto’s earnings as auto sales have been in an uptrend.
  • BitAuto has solid, impressive bottom line growth.
  • It is currently trading above both its 50-day and 200 day moving averages.

Financial Strength:          Positive

Valuation:                              Positive – Buy up to $100

Momentum:                          Positive

Risk:                                            Neutral

Earnings Trend:                  Positive

12-month price target:       $150

 

 

Stock Pick # 3: Ctrip.com (Nasdaq: CTRP)

Ctrip.com International, Ltd. (CTRP) is a leading travel service provider of hotel accommodations, airline tickets and packaged-tours in China. Ctrip aggregates information on hotels and flights and enables customers to make informed and cost-effective hotel and flight bookings. Ctrip targets primarily business and leisure travelers in China who do not travel in-group. These travelers form a traditionally under-served yet fast-growing segment of the China travel industry. Ctrip has experienced substantial growth and become one of the best-known travel brands in China.

Reasons to consider CTRP:

  • Ctrip is a major travel agent in China with a solid reputation for services. It is well positioned to benefit from that country’s rising demand for business and leisure travel.
  • Even in an economic downturn occurs, Ctrip typically has better bargaining power with travel suppliers. This should prove to be favorable as it can helps to partially offset any slump in travel volume.
  • Ctrip serves as an intermediary between travelers and travel providers. This business model helps Ctrip leverage scaling efficiencies as it relates to pricing flights and hotel rooms.

Financial Strength:              Neutral

Valuation:                             Positive – Buy up to $70

Momentum:                          Positive

Risk:                                          Neutral

Earnings Trend:                  Positive

12-month price target:       $110

 

Stock Pick #4: YY INC. (NASDAQ: YY)

YY Inc. (YY) is a communication social platform, which engages users in online group activities through voice, text and video. The Company’s Platform consists of YY Client, the YY.com and Duowan.com web portals, Mobile YY and Web-based YY. YY Inc. is based in Guangzhou, the People’s Republic of China.

Reasons to consider YY:

  • As more of the Chinese population seeks social media and text choices they will utilize YY Inc’s services. This positive trend should help fuel its earnings growth.
  • This firm, which is in the Internet Content, saw EPS growth of 362.1% last year, and is looking great for 2014-5 too.
  • Current growth estimate for this year calls for earnings-per-share growth of 105.5%.
  • Long-term growth rate is currently an impressive 40%, suggesting pretty good prospects for the future as well.

Financial Strength:              Positive

Valuation:                             Positive – Buy up to $100

Momentum:                          Positive

Risk:                                       Neutral

Earnings Trend:                  Neutral

12-month price target:       $150

 

Stock Pick #5:  Qihoo 360 Technology (NASDAQ: QIHU)

Qihoo 360 Technology Co., Ltd. provides high-quality Internet and mobile security products in China. Its products and services are supported by its cloud-based security technology.

Its core Internet and mobile security products include 360 Safe Guard and 360 Anti-virus 360 Mobile Safe, 360 Safe Browser, 360 Personal Start-up Page, 360 Application Store and 360 Safebox. The Company also provides advertising services by providing marketing opportunities on our websites and offers web games developed by third parties, provide Internet security services such as remote technical support to paying customers and provide other Internet value-added services.

Reasons to consider QIHU:

  • As more of the Chinese population seeks Internet and mobile services they will utilize Qihoo’s services. This positive technology trend should help fuel its earnings growth.
  • Its balance sheet is free from long-term debt placing it in solid financial condition.
  • It is currently trading above its 50-day and 200 day moving averages.

 

Financial Strength:              Positive

Valuation:                             Positive – Buy up to $95

Momentum:                          Positive

Risk:                                       Neutral

Earnings Trend:                  Positive

12-month price target:       $130

 

Bottom Line: When you examine the world economy and markets, China looks very attractive compared with both the developed countries and other emerging market countries like India, Russia, and Brazil. China should continue to benefit from high economic growth rate and thus rising incomes for next two decades. Even considering all of the risk associated with asset bubbles, the promise of China is simply too tantalizing to ignore. For these reasons, China should be a great place to invest!

 

7 Retail Stocks to Consider

Not All Retail Stocks Are Created Equal!

As a consumer, power is in your hands! Consumption accounts for more than two-thirds of economic growth as measured by GDP (Gross Domestic Product). As an active consumer in the marketplace, you play a huge role in the economic activity taking place in this country. As the economy continues to recover from the worst decline since the Great Depression, you as an investor can also benefit from this great opportunity.

If you look at trends as I do, you can clearly see retail sales, consumer spending and consumer confidence have all continued to show improvement.

Retail Sales (June 2009 to June 2014):

Personal Consumption Expenditures (June 2009 to June 2014):

University of Michigan Consumer Sentiment (June 2009 to June 2014):

The big picture trend is clearly heading in the right direction. Now this doesn’t mean you should just go out and buy just any retail stocks. Not all retail stocks are created equal. Right now, some are still stuck in the mud, while other have been crushing Wall Street expectations. To be successful with retail stocks, you need to be able to distinguish between the winners and the losers.

Let’s go through some of the strongest areas of the retail sector and I will show you seven companies poised to do best over the next six to 12 months.

Here are my top retail stocks for the next 6-12 months:

1. Hanesbrands (NYSE: HBI)

Hanesbrands, Inc. is a consumer goods company engaged in designing, manufacturing, sourcing and selling men’s and women’s basic apparel. Brands include Hanes, Champion, Just My Size and Duofold brands. The company’s history goes back to when Shamrock Mills was founded by J. Wesley Hanes in 1901. Hanesbrands was founded in September 2005 and is headquartered in Winston-Salem, NC.

Hanesbrands’ previous high debt levels have been drastically reduced, creating more cash flow for acquisitions, dividend increases and the repurchase of shares. The company is growing through acquisitions and the global appeal of its widely recognized brand names. The growth in its international business is providing a lot of upside potential going forward. The company strategy seems to be working: profits have increased from $51.28 million – in the depths of the recession in 2009 – to $330.49 million last year.

2. Vipshop Holdings LTD (NYSE: VIPS)

Founded in 2010, and based in Guangzhou, China, VipShop Holdings Ltd. is engaged in online product sales and distribution. It offers apparel for men, women and children, which includes footwear, accessories, handbags, sportswear and sporting goods, cosmetics, home and lifestyle products, luxury goods, and gifts and miscellaneous products.

Vipshop is well positioned to take advantage of the rise of the Chinese middle class consumer. It controls the largest e-commerce platform in its category in the fastest growing consumer economy on the globe, and has a stunning 90% market share. The company is viewed as the “TJ Maxx” of China. Vipshop dominates a wildly profitable market segment that Deutsche Bank calls “acutely under-penetrated and still-underestimated.” The level of customer loyalty the company enjoys was once unimaginable — coupled with what HSBC calls “tremendous potential to keep growing its customer base,” this company is a powerful cocktail for investors.

Sales have increased from just $32.85 million in 2010 all the way to $1.7 billion in 2013.
The company turned its first profit last year – $52.36 million.

3. VF Corp. (NYSE: VFC)

VF Corp. is a branded lifestyle producer of apparel, footwear, and related products across brands, product categories, channels of distribution and geographies. Company brands include jeanswear, outerwear, packs, luggage, footwear, sportswear, occupational, and performance apparel categories. Brand names include Lee, Lee Casuals and Wrangler, as well as Nautica, Ella Moss and various other brands. One of the oldest apparel companies in the US, VF was founded in 1899 and headquartered in Greensboro, NC.

From an investor perspective, VF Corp. represents good values, rising dividends and a strong outlook. The company has shown strong growth since the recession. Sales have stair stepped from $7.22 billion in 2009 to $11.41 billion in 2013. Earnings have rocketed from $461.27 million in 2009 to $1.21 billion in 2013. EPS have increased from $1.03 to $2.71 in the same space of time.

The stock currently yields 1.7%, making it one of the highest dividends in the apparel industry. In addition, VF Corp. has raised its dividend for 41 straight years, and has bought back nearly $5 billion of outstanding stock in the past decade.

4. Under Armour Inc. (NYSE: UA)

Under Armour, Inc. develops, markets, and distributes branded performance apparel, footwear and accessories for men, women and children. Its brand’s moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. The company founded in 1996 and is headquartered in Baltimore, MD.

The company’s is one of the dominant retailers in the US, but is gaining international exposure, selling in Austria, France, Japan, Germany, Ireland and the United Kingdom. It is also growing rapidly in Canada, China and Latin America, boosting sales and earnings in a big way.

Under Armour has shown a steady progression of revenue growth, going from $856.41 million in 2009 to $2.33 billion as of last year. Net income has risen in lockstep with revenues, rising from $46.79 million in 2009 to $162.17 million in 2013 – a near four-fold increase since the bottom of the recession.

5. Williams-Sonoma Inc. (NYSE:WSM)

Williams-Sonoma, Inc. operates as a multi-channel specialty retailer. The Direct-to-Customer segment has seven merchandising concepts: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Williams-Sonoma Home and Rejuvenation.

Nearly half of revenue is generated through direct-to-consumer channels. This helps minimize the expense of a brick-and-mortar footprint and maximize operating margins. The company sells its products through its rapidly expanding online operation, working through its six e-commerce websites. It sells less discretionary categories such as cookware and small appliances that offer some resiliency amid macroeconomic cyclicality. Wedding and gift registry businesses provide a stable source of customers.

Williams-Sonoma was founded 1956 and is headquartered in San Francisco, CA, and the firm opened its first company-owned stores outside of North America in 2013. International opportunities could provide significant location and revenue growth, and improved brand awareness.

Revenues have increased steadily since the recession, but the real improvement has been in earnings, which have moved from $77.44 million at the bottom of the economy in 2009, all the way to $278.9 million last year.

6. Michael Kors Holdings Ltd. (NYSE:KORS)

Michael Kors Holdings Ltd. engages in the design and distribution of sportswear, accessories, footwear and apparel. The company’s product portfolio includes: handbags, small leather goods, eye wear, jewellery, and watches. It offers three collections, Michael Kors, MICHAEL Michael Kors, and KORS Michael Kors. The Retail segment operates collection stores, lifestyle stores and outlet stores. The Wholesale segment sells the company’s products to department stores, as well as specialty retail stores and travel shopping locations. The Licensing segment licenses third parties certain production, sales and/or distribution rights. Headquartered in Hong Kong, the company was founded in 2002.

The Company’s stock has been beaten down of late (down 20%), which makes the retailer an even more attractive long-term opportunity. Revenues have exploded from $508.1 million in 2010 to $3.31 billion in fiscal 2014, including sales growth of nearly 52% for fiscal 2014. Net income has shown a similar but even more dramatic increase, rising from a modest $39.25 million in 2010 to $661.49 in 2014 – a fifteen fold increase.

7. Restoration Hardware Holdings Inc. (USC:RH)

Restoration Hardware Holdings, Inc. is a luxury home furnishings company showing explosive growth potential. It offers furniture, lighting, textiles, bath ware, décor, outdoor and garden, as well as baby and child products. It operates an integrated business with multiple channels of distribution, including galleries, source books and websites. The company was founded in 2011 and is headquartered in Corte Madera, CA.

The company has a unique opportunity as it has been under-utilizing its square footage footprint and only displaying 15% of its merchandise at any given time. The company stated that it sees a 50–150% sales lift on merchandise when it is displayed in stores and that it now has the opportunity to increase its assortment by 2.5–7.0x in its new store formats. This could lead to 20% top-line growth, high 20% EBITDA growth, and mid-to-high 20% EPS growth.

Earnings have been spotty, but revenues have taken off, rising from $625.69 in fiscal 2010, to $1.55 billion in fiscal 2014.

Retail stocks are a barometer of the strength of the overall economy. And based on what’s happening with these seven companies, things are beginning to turn in the right direction.

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