The Chinese economy was projected to rebound strongly following the end of stringent Covid-19-led lockdowns. However, the recovery has been slower than anticipated and has adversely impacted investor sentiment on Chinese stocks. After a dismal 2023, Chinese stocks remain under pressure and started the year on a rough note, as companies continue to await robust stimulus measures by the government to spur domestic demand.
China’s property market crisis, growing deflationary risks, subdued demand, and rising trade tensions between the U.S. and China are expected to continue to weigh on the stocks of the world’s second-largest economy over the near term. Nonetheless, Wall Street is upbeat about several Chinese stocks that are listed in the U.S., given their long-term growth potential.
The Stand of Alibaba (BABA)
Shares of Chinese e-commerce giant Alibaba (NYSE:BABA) continue to decline this year after ending 2023 in the red. Macroeconomic challenges in China, intense competition from rivals like PDD Holdings (NASDAQ:PDD) and JD.com (NASDAQ:JD), and uncertainty related to the company’s reorganization plans have dragged down the tech giant’s stock.
Earlier this month, Bank of America analyst Joyce Ju lowered the price target for Alibaba stock to $106 from $113. However, she maintained a “buy” rating. The analyst expects the company’s fiscal Q3 revenue growth to slow down to 5% compared to 9% in the previous quarter due to near-term “turbulence” in the Taobao and Tmall Group’s revenue amid its strategic transition.
Despite near-term headwinds, most analysts remain bullish on Alibaba. This is due to its dominance in the Chinese e-commerce space, solid fundamentals, and prospects in cloud computing and artificial intelligence (AI). The company ended the fiscal second quarter with free cash flow of RMB 45.2 billion, a year-over-year increase of 27%.
With a solid cash position, Alibaba is well-equipped to pursue growth opportunities in lucrative areas like generative AI. It is worth noting that the company recently initiated dividends to boost shareholder returns.
Overall, Alibaba scores Wall Street’s “strong buy” consensus rating based on 18 buys and two holds. The average price target of $118.60 for BABA stock implies nearly 73% upside potential.
The Prospects of Nio (NIO)
Shares of Chinese electric vehicle (EV) maker Nio (NYSE:NIO) declined significantly in 2023 and continue to be under pressure this year. Investors remain concerned about the company’s fluctuating performance, macro woes, and continued losses. Also, the price war triggered by Tesla (NASDAQ:TSLA) has also hit Nio and other players.
Nonetheless, the company is taking initiatives to reduce costs and enhance efficiency to address concerns about its profitability. Meanwhile, on Jan. 1, Nio reported a nearly 31% rise in its deliveries in 2023 to 160,038 vehicles.
Looking ahead, Nio is optimistic about its ET9 model, an executive sedan. Deliveries for the vehicle will likely commence in the first quarter of 2025.
Recently, Bank of America analyst Ming-Hsun Lee downgraded Nio stock to “hold” from “buy” with a price target of $9, citing disappointing sales and valuation concerns. The analyst expects the company’s sales to face hurdles in the first three quarters of this year due to the lack of new model launches and a potential slowdown in volume growth. The analyst also projects higher-than-anticipated operating expenses due to increased spending on marketing campaigns.
Wall Street has a “moderate buy” consensus rating on Nio based on six buys and four holds. At $10.86, the average price target for Nio stock indicates about 82% upside potential.
Assessing Li Auto (LI)
Macro worries and sluggish growth trends in China’s EV market have impacted investor sentiment for Li Auto (NASDAQ:LI) stock so far in 2024, even though the company’s performance has been impressive in recent quarters.
Earlier this month, Li Auto reported 50,353 deliveries for December 2023, which marked a 137% year-over-year increase. With this, the company’s 2023 deliveries increased 182% to 376,030 units. It is also worth noting that unlike several unprofitable EV makers, Li Auto delivered profits in each of the first three quarters of 2023.
Overall, Li Auto seems well-positioned for continued growth. Its new EV models like MEGA, the recently announced partnership with chip giant Nvidia (NASDAQ:NVDA), and operating efficiency and cost-management efforts are boosting its profitability.
Recently, analysts at Bank of America called Li Auto one of their “Top Picks” for 2024. Additionally, they reiterated a “buy” rating on the stock with a price target of $55. Analysts at the bank expect Li Auto to win incremental share in the Chinese EV market this year, driven by its expanding product offerings. The bullish stance is also backed by a rise in Li Auto’s penetration in the luxury/premium EV segment and a solid pipeline of upcoming models.
Overall, Li Auto scores a “strong buy” consensus rating backed by six unanimous buys. The average price target of $53.58 for Li Auto stock implies over 95% upside from current levels.
In conclusion, Wall Street is highly bullish on Li Auto and Alibaba. It is cautiously optimistic about Nio due to profitability concerns. Currently, analysts see higher upside potential in Li Auto than in the other two Chinese stocks. Management’s solid execution and continued demand for Li Auto’s EVs should boost the company’s revenue and profitability in the years ahead.
On the date of publication, Sirisha Bhogaraju did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Sirisha Bhogaraju has over 15 years of experience in financial research. She has written in-depth research reports and covered companies across various sectors, with a primary focus on the consumer sector. Sirisha has a master’s degree in finance.
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