Despite the ongoing U.S.-China trade war, gurus still have high conviction in Chinese securities as of June, ahead of China’s “Duan Wu Festival.” According to Aggregated Portfolio statistics, gurus have the broadest ownership in the following six Chinese stocks: Alibaba Group Holding Ltd. (BABA, Financial), Baidu Inc. (BIDU, Financial), JD.com Inc. (JD, Financial), New Oriental Education & Technology Group Inc. (EDU, Financial), Ctrip.com International Ltd. (CTRP, Financial) and 58.com Inc. (WUBA, Financial).
China market remains undervalued, yet U.S.-China trade war remains a concern
The Dow Jones Industrial Average tumbled to a three-month low of 24,815.04 on May 31, while Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc.'s (BRK.A, Financial)(BRK.B, Financial) top holding, Apple Inc. (AAPL, Financial), languished near a three-month low of $172.50.
President Trump reported to Reuters that while he thinks China “still wants to make a deal,” he said he could slap tariffs on an additional $300 billion worth of Chinese goods at the appropriate time, having already increased tariffs on $200 billion worth in early May. Beijing retaliated with tariffs on $60 billion worth of U.S. goods and a “far tougher stance” on U.S. requests, according to CNBC columnist Matt Clinch.
Despite the ongoing trade war, the Chinese stock market remains undervalued: Based on a total market cap to gross domestic product ratio of 40%, the implied market return is 27.2% per year assuming the market level reverses to the historical mean of 143% over the next eight years.
Alibaba
Thirty-four gurus own shares of Alibaba with a combined weight of 138.26%. Gurus that have increased their holdings in the Chinese e-commerce giant over the past six months include Stanley Druckenmiller (Trades, Portfolio) and the Matthews China Fund (Trades, Portfolio).
The Hangzhou, Zhejiang-based company said on May 15 that revenues for the 12 months ending March 31 were 376,844 million yuan ($56,152 million), up 51% from the prior-year quarter. Alibaba Chief Financial Officer Maggie Wu said robust user growth and engagement across the company’s ecosystem boosted revenue growth for the year.
GuruFocus ranks Alibaba’s profitability 8 out of 10 on several positive signs, which include a three-year revenue growth rate outperforming 96.22% of global competitors and a three-year Ebitda growth rate outperforming 92.54% of global competitors. Additionally, profit margins are still outperforming over 97% of global specialty retail companies despite contracting 15.7% per year over the past five years.
Baidu
Twenty-five gurus own shares of Baidu with a combined weight of 38.57%. Gurus with large holdings in the Chinese online media giant include Sarah Ketterer (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).
GuruFocus ranks Baidu’s profitability 7 out of 10: Even though the company has a weak Piotroski F-score of 3, suggesting poor business operations, its operating margin, return on assets and three-year revenue growth rate are outperforming over 72% of global online media competitors.
JD.com
Fourteen gurus own shares of JD.com with a combined weight of 24.72%. Gurus with large holdings in JD.com include Chase Coleman (Trades, Portfolio)’s Tiger Global Management, Ken Fisher (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio).
JD.com, China’s second-largest e-commerce company after Alibaba in terms of transaction volume, offers a wide selection of authentic products at competitive prices. GuruFocus ranks the Beijing-based company’s financial strength 6 out of 10: Even though the debt-to-Ebitda ratio underperforms 86.71% of global competitors, JD.com has a solid Piotroski F-score of 6 and a strong Altman Z-score of 3.54, suggesting little financial distress.
New Oriental Education
Thirteen gurus own shares of New Oriental Education with a combined weight of 7.06%. Chris Davis (Trades, Portfolio) has the largest stake with 10,479,224 shares.
The Beijing-based educational services company provides programs like English training, test preparation courses and after-school tutoring. GuruFocus ranks the company’s profitability 6 out of 10: Although the three-year revenue growth rate outperforms 80% of global competitors, New Oriental Education’s operating margin has declined approximately 3.6% per year over the past five years and is outperforming just 63.91% of global education and training service companies.
Ctrip.com
Thirteen gurus own shares of Ctrip.com with a combined weight of 4.01%.
The Shanghai-based company generates over 80% of its sales through hotel reservations and air ticketing reservations and the remainder of its sales through package tours and corporate travel. GuruFocus ranks Ctrip.com’s financial strength 5 out of 10: Although the company’s cash-to-debt ratio of 0.9 outperforms 57% of global competitors, it has a weak Piotroski F-score of 3 and an Altman Z-score that suggests possible financial distress. Despite this, the company’s profitability ranks 7 out of 10 as strong three-year revenue and Ebitda growth rates offset returns on assets that are underperforming 59.78% of global travel and leisure companies.
58.com
Nine gurus own shares of 58.com with a combined holding of 2.47%.
The Beijing-based company operates an online marketplace for local merchants and consumers to connect, share information and conduct business. GuruFocus ranks 58.com’s financial strength 8 out of 10 on several positive indicators, which include a strong Altman Z-score of 4.44 and debt ratios that outperform over 74% of global competitors.
Disclosure: No positions.
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