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Smart Money Moving Into Chinese Stocks (ZTO, BABA, PLIN, PDD)

China has been in the news almost constantly in recent months as the COVID-19 global pandemic wreaks havoc in over a hundred countries around the world. The outbreak took root in China, but the Chinese appear to have handled it better than many countries.

Perhaps that’s because they protected an information and supply advantage. Perhaps not. We’ll leave that to politicians and international organizations to iron out. For investors, the more important point may simply be this: trillions of dollars are being created out of thin air around the world, and interest rates are universally at 0% in the developed world. So, where will those dollars flow?

One interesting bet being made by some of the smartest investors is pretty simple: Chinese stocks.

With that in mind, we profile some interesting opportunities here that may provide fodder for further research and potential investment: ZTO Express (Cayman) Inc (NYSE:ZTO), Alibaba Group Holding Ltd – ADR (NYSE:BABA), China Xiangtai Food Co Ltd (NASDAQ:PLIN), and Pinduoduo Inc – ADR (NASDAQ:PDD).

 

ZTO Express (Cayman) Inc (NYSE:ZTO) is already ranked #1 in the Chinese logistics space for IBD, which places strong emphasis on momentum – the stock is on fire.

That’s particularly interesting because it runs precisely against a common-sense view of the world as of two months ago, when the worst possible themes were “China” and “Transports”. Now, as we work through the thick of the worst of the pandemic, ZTO is blazing hot, exhibiting a parabolic upward trend in recent weeks.

ZTO Express (Cayman) Inc (NYSE:ZTO) frames itself as a company that provides express delivery and other value-added logistics services in the People’s Republic of China.

The company offers delivery services for e-commerce and traditional merchants, and other express service users. As of December 31, 2019, it operated a fleet of approximately 6,450 self-owned trucks. The company was founded in 2002 and is headquartered in Shanghai, the People’s Republic of China.

If you’re long this stock, then you’re liking how it has responded in recent action. ZTO shares have been moving higher over the past week overall, pushing about 18% to the upside on above average trading volume.

ZTO Express (Cayman) Inc (NYSE:ZTO) generated sales of $971.8M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 29.5% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($2.4B against $959.1M).

 

Alibaba Group Holding Ltd – ADR (NYSE:BABA) is a clear leadership play among Chinese stocks, with a strong focus in the logistics and supply chain management space, and an ace B2B platform that continues to pick up momentum as a global leadership resource on the distribution side.

The stock has been resilient during the past 3 months, with shares now trading well above the key 50-day moving average. This strength has been driven in part by recent growing investments in its cloud segment. As an example, Alibaba Cloud, the data intelligence backbone of the company, announced late last month that it now has the third biggest market share in the global Infrastructure as a Service market and the biggest in the Asia Pacific region for the third year in a row in 2019.

Alibaba Group Holding Ltd (NYSE:BABA) bills itself as a company that, through its subsidiaries, operates as an online and mobile commerce company in the People’s Republic of China and internationally.

This is Jack Ma’s Chinese version of Amazon, or so the popular understanding goes.

The company operates in four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. It operates Taobao Marketplace, a mobile commerce destination; Tmall, a third-party platform for brands and retailers; Rural Taobao program that enables rural residents and businesses to sell agricultural products to urban consumers; 1688.com, an online wholesale marketplace; Alibaba.com, an online wholesale marketplace; AliExpress, a retail marketplace; Lazada, an e-commerce platform; and Lingshoutong, a digital sourcing platform.

The company also provides pay-for-performance and display marketing services; and Taobao Ad Network and Exchange, a real-time bidding online marketing exchange in China; and digital payment and financial technology platform services.

In addition, much like Amazon, it offers cloud computing services, including elastic computing, database, storage, virtualization network, large scale computing, security, and management and application services, big data analytics, a machine learning platform, and Internet of Things and other service for enterprises; and payment and escrow services; and movies, TV drama series, online dramas, variety shows, news feeds, games, literature and music, and other areas through various content platforms, as well as develops and operates mobile browsers.

Further, the company provides AutoNavi, a mobile digital map, navigation, and real-time traffic information; DingTalk, a proprietary enterprise communication and collaboration platform; and Tmall Genie, an AI-powered voice assistant, which helps consumers to shop, order local services, search for information, control smart appliances, and play interactive content.

If you’re long this stock, then you’re liking how it has responded to the announcement. BABA shares have been moving higher over the past week overall, pushing about 7% to the upside on above average trading volume.

 

China Xiangtai Food Co Ltd (NASDAQ:PLIN) appears to be bottoming on a technical basis after a sharp bargain-building process in Q1. Since its lows in mid-March, we have seen the construction of a promising “Bullish Ascending Triangle” pattern, with a bull breakout trigger around the $1.90 level, in step with the stock’s 50-day simple moving average.

The company is an emerging leader in the Chinese meat processing space (think, China’s Hormel or Tyson). The company is building an M&A-based strategy to roll-up profitable smaller pieces of the Chinese domestic meat processing industry. And it has a distinct advantage, as a US Nasdaq-listed entity with strong-handed international capital support.

China Xiangtai Food Co. Ltd. (OTCMKTS:PLIN) engages in the slaughtering, processing, packing, distribution, wholesale, and retail of various fresh pork meat and parts in the People’s Republic of China.

The company offers fresh pork and byproducts, as well as beef, lamb, chicken, duck, and rabbit meat. It also provides shredded meat, sliced meat, meat stuffing, pickled meat, lamb and offal, sausage, bacon, steamed and canned meat, breaded chicken, and spicy meat products, as well as chilled and frozen pork.

The company also operates a supermarket segment.

Headquartered in Chongqing, China, China Xiangtai Food Co., Ltd, is a food company primarily engaged in pork processing. The Company’s operations span key sections of the pork processing value chain, including slaughtering, packing, distribution, and wholesale of a variety of fresh pork meat and parts.

The company is already working from a strong revenue base, including $102 million in trailing 12-month revs. After the closing of its upcoming takeout of JMC Feed, you can expect that to push another $70M higher.

As noted above, the company appears to be pursuing a roll-up strategy, harnessing growth through both organic and M&A-based strategies.

The landscape that defines the Chinese food supply space is a jumble of small players turning in $10-50 million in annual revenues, with no regional diversification or coordinated top-down scaling efficiencies. It’s ripe for a roll-up champion, and US-Nasdaq-listed PLIN is committed to carrying out that mission.

 

Pinduoduo Inc – ADR (NASDAQ:PDD) is another momentum favorite and represents a genuine ecommerce rival for the likes of Alibaba and JD.com, which hold the top two spots in the Chinese ecommerce landscape.

The key with PDD is the innovative “group buying” function – the more people who buy a product, the lower the price of the product goes. It effectively operationalizes volume pricing directly in response to the volume and in real time. However, the company has no way of protecting this process as a trade secret. And we now see both BABA and JD launching competitive products. Hence, latecomers may want to be prepared for some bumps in the road ahead.

Pinduoduo Inc – ADR (NASDAQ:PDD) promulgates itself as a company that operates an e-commerce platform in the People’s Republic of China.

It operates Pinduoduo, a mobile platform that offers a range of products, including apparel, shoes, bags, mother and childcare products, food and beverage, fresh produce, electronic appliances, furniture and household goods, cosmetics and other personal care items, sports and fitness items, and auto accessories.

The company was formerly known as Walnut Street Group Holding Limited and changed its name to Pinduoduo Inc. in July 2018. Pinduoduo Inc. was founded in 2015 and is headquartered in Shanghai, the People’s Republic of China.

If you’re long this stock, then you’re liking how the stock has responded to the announcement. PDD shares have been moving higher over the past week overall, pushing about 18% to the upside on above average trading volume.

Shares of the stock have powered higher over the past month, rallying roughly 33% in that time on strong overall action.

Pinduoduo Inc – ADR (NASDAQ:PDD) managed to rope in revenues totaling $1.5B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 87.4%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($9.9B against $6.6B).

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email ([email protected]) or his Google+ page (https://plus.google.com/103338576216002376250).

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