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Big Cap Chinese Stocks: Values or Traps?

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  • (0:45) - The Chinese Stocks Are Selling Off: Buying Opportunity or Value Trap?
  • (5:35) - Tracey’s Top Stock Picks
  • (18:20) - Big Takeaways From Chinese Stocks: BABA, JD, TCEHY, BIDU, TAL


Welcome to Episode #237 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With the weakness in growth names, it’s time to take a look at some big caps to see if there are any true deals.

The Chinese stocks have been popular with investors the last few years as one of the few ways to play the great Chinese growth story.

Who doesn’t want to tap the billions of consumers in their market?

But many of the big cap Chinese stocks have been weak in 2021 due to the crackdown by the Chinese government on big cap technology companies and the pandemic, among other things.

Is this a buying opportunity?

Or is it a trap?

Definition of a Value Stock Versus a Value Trap

Remember, classic value stocks have low classic fundamentals like P/Es, P/B, P/S and PEG ratios.

Value traps can have those too.

But true value stocks will have one differentiating thing: earnings growth.

Earnings will be expected to grow year-over-year.

Are Chinese stocks a value on this weakness?

5 Big Cap Chinese Stocks: Value or Trap?

1.       Alibaba (BABA - Free Report) shares are down 8.7% year-to-date compared with the S&P 500 which is up nearly 11%. It’s P/E is just 18, which makes it the “cheapest” on a P/E basis of China’s big cap tech companies. But are earnings expected to grow in 2021 and 2022?

2. (JD - Free Report) shares are down 16.5% year-to-date. That’s really under performing the S&P 500 during that time. It has a sky-high forward P/E of 45 but it’s PEG ratio is just 1.00. Is it a value?

3.       Tencent (TCEHY - Free Report) is China’s largest social networks company and is sometimes called the “Facebook of China” because it operates WeChat. Shares are actually up nearly 10% year-to-date. It trades with a forward P/E of 32. Are earnings expected to grow this year?

4.       Baidu (BIDU - Free Report) is a cloud and AI-focused Chinese tech company which saw first quarter revenue jump 34%. But shares are down nearly 10% year-to-date. It trades with a “cheap” forward P/E of just 19.6. Is it a deal or a trap?

5.       Tal Education Group (TAL - Free Report) offer K-12 after-school tutoring services and has learning centers in 90 Chinese cities. Shares are down a whopping 44% year-to-date and it still has a forward P/E of 69. But is there value after the sell-off?

Should value investors be putting Chinese stocks on their watch list?

Find out on this week’s podcast.

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