In this article, we will look at the 7 Most Profitable Chinese Stocks To Invest In.
China’s Economic Growth
According to a report by the IMF, the economy of China is expected to grow 5% in 2024 and 4.5% in 2025, marking an upward revision of 0.4 percentage points from the previous April projections. This growth is largely driven by robust Q1 GDP data and recent policy measures. However, the IMF warns of potential risks on the downside, citing a prolonged and more severe-than-expected adjustment in the property sector and increasing fragmentation pressures.
In terms of inflation, the IMF forecasts a moderate increase in core inflation to 1% in 2024, with growth expected to slow down to 3.3% by 2029 due to demographic challenges and slower productivity growth. China’s economy is facing weak consumer spending due to a prolonged housing slump and high youth unemployment. In an effort to diversify revenue streams, Chinese tech firms are focusing on artificial intelligence (AI). However, there is intense global competition which limits the effectiveness of this approach.
The government needs to implement policies that boost spending and restore consumer confidence. The recent slowdown in economic growth and rising geopolitical tensions have led to a significant outflow of foreign investment, with nearly $15 billion pulled out of the country in the second quarter of 2023. Some foreign car manufacturers have also scaled back or withdrawn their investments due to the rapid shift towards electric vehicles in China. As a result, China’s balance of payments has turned negative, which could potentially result in the first annual net outflow of foreign investment since 1990.
Buy Everything Related to China, Says Billionaire David Tepper
Billionaire investor, David Tepper, founder of Appaloosa Management, has expressed an extremely bullish opinion on his investments, particularly in China. In an interview on CNBC on September 26, he stated that he is increasing his exposure to Chinese stocks, citing the country’s efforts to stimulate its economy. Tepper believes that China’s plans to inject $142 billion of capital into top state-owned banks and implement positive policies will boost the economy and lead to a surge in Chinese stocks. As a result, he is “buying everything” related to China.
Tepper’s strategy is not limited to individual Chinese stocks, as he is also investing in Chinese ETFs. He believes that these ETFs offer a convenient way to gain exposure to a basket of Chinese companies. Tepper’s bullishness on China is not without risk, as he acknowledges that there are still challenges facing the country’s economy. However, he believes that the potential rewards outweigh the risks and is willing to take on that risk.
In contrast, Tepper is less enthusiastic about the US market, citing valuation concerns. He believes that the US market is not as attractive as the Chinese market, and is therefore allocating more of his portfolio to Chinese stocks. However, he still owns significant positions in US companies.
As China navigates its economic challenges, the government will need to strike a balance between stimulating growth and addressing the issues that are hindering consumer spending and investment. However, David Tepper’s move to increase his exposure to Chinese stocks and ETFs reflects investor confidence in the country’s economic recovery and growth potential. With that in context let’s take a look at the 7 most profitable Chinese stocks to invest in.
A closeup of hands holding a steaming cup of coffee with the Shanghai skyline in the background, symbolizing the company’s presence in the People’s Republic of China.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in China by market cap. From that list, we narrowed our choices to 7 stocks with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Most Profitable Chinese Stocks To Invest In
7. H World (NASDAQ:HTHT)
TTM Net Income: $559 Million
5-Year Net Income CAGR: 31.50%
Number of Hedge Fund Holders: 24
H World (NASDAQ:HTHT) is a leading player in China’s hospitality industry. The company’s business model is built around three primary strategies: leasing and owning properties, franchising, and managing hotels. By diversifying its approach, H World (NASDAQ:HTHT) is able to maintain a strong foothold in the hospitality sector while also presenting substantial growth opportunities through efficient risk management and financial investment.
The company’s diversified strategy allows it to maximize its income sources, boost brand awareness, and expand its market share at a lower upfront cost than traditional hotel ownership. As of Q1, H World (NASDAQ:HTHT) manages a network of 9,817 hotels across 18 countries. This extensive network enables the company to cater to a wide range of customers and provide a unique hospitality experience.
H World (NASDAQ:HTHT) remains committed to delivering exceptional customer experiences and continually enhancing the quality of its offerings. In the first half of 2024, the company reported a 14.1% increase in earnings to $1.6 billion, compared to the same period in the previous year. This growth was driven by a 14.3% rise in earnings to $1.30 billion.
H World Group has demonstrated impressive financial growth, with a net income of $559 million for the twelve months ending June 30, and a 5-year net income compound annual growth rate (CAGR) of 31.50%, which highlights the company’s ability to consistently deliver strong financial performance. Additionally, H World Group has attracted the attention of institutional investors, with 24 hedge funds holding stakes in the company worth $346.84 million as of the second quarter.
6. Tencent Music Entertainment (NYSE:TME)
TTM Net Income: $777 Million
5-Year Net Income CAGR: 22.74%
Number of Hedge Fund Holders: 25
Tencent Music Entertainment (NYSE:TME) is China’s leading online music entertainment platform, offering a variety of music streaming services, including QQ Music, Kugou Music, Kuwo Music, and WeSing. The company has successfully combined music streaming with social entertainment features, creating a unique user experience.
Tencent Music Entertainment (NYSE:TME) has leveraged its large user base and content partnerships to become a dominant player in China’s digital music market. China’s online music market is growing rapidly, with Tencent Music Entertainment (NYSE:TME) dominating the market with a share of over 60% in monthly active users (MAU) and over 70% in paid users. According to a report by China Insight Consultancy, China’s online music market is expected to reach $6.9 billion by 2025, driven by higher penetration rates and higher average revenue per user (ARPU).
Tencent Music Entertainment Group (NYSE:TME) has demonstrated impressive financial growth, with a 5-year net income compound annual growth rate (CAGR) of 22.74% and a net income of $777 million for the twelve months ending June 30, representing a 16.28% year-over-year increase. Financial projections by Wall Street analysts show potential earnings growth in the next few years, driven by expanding margins and improving operational efficiency.
5. NetEase (NASDAQ:NTES)
TTM Net Income: $4.01 Billion
5-Year Net Income CAGR: 26.92%
Number of Hedge Fund Holders: 35
NetEase (NASDAQ:NTES) is a leading online services company that operates primarily in the gaming, education, and e-commerce sectors. The company’s gaming division is a major player in the industry, with a portfolio of over 100 game products and strategic partnerships with renowned gaming companies, including Blizzard. NetEase (NASDAQ:NTES) has established itself as a notable player in the gaming industry, both in China and globally.
NetEase (NASDAQ:NTES) has a robust pipeline of upcoming game releases, with several recent launches that have garnered positive reviews from players. The company’s Naraka: Bladepoint Mobile, launched in China in July, has been well-received by the gaming community. Additionally, its Hero Shooter and Marvel Rival have also received enthusiastic feedback from players. NetEase (NASDAQ:NTES) has also successfully launched Marvel Rivals on prominent gaming platforms, including PlayStation 5, Xbox Series X|S, and PC, expanding its reach in the gaming market.
NetEase (NASDAQ:NTES) boasts an impressive $19 billion in cash and equivalents, with almost no debt burden. This financial stability provides the company with the flexibility to invest aggressively in research and development (R&D) initiatives and take risks on innovative new game releases. The combination of NetEase’s (NASDAQ:NTES) solid financial foundation and its promising pipeline of upcoming games makes the company an attractive investment opportunity.
NetEase (NASDAQ:NTES) has reported strong financial results, with a net income of $4.010 billion for the twelve months ending June 30, 2024, representing an 11.84% increase year-over-year, and a 5-year net income compound annual growth rate (CAGR) of 26.92%. As of the second quarter, 35 hedge funds have invested in the company, valued at $993.75 million.
4. New Oriental Education & Technology (NYSE:EDU)
TTM Net Income: $310 Million
5-Year Net Income CAGR: 5.39%
Number of Hedge Fund Holders: 37
New Oriental Education & Technology (NYSE:EDU) is a leading provider of private educational services in China, offering tutoring, K-12 education, test preparation, vocational training and language training. The company has built itself as a trusted name in the Chinese education market.
New Oriental Education & Technology (NYSE:EDU) has demonstrated impressive financial growth, with a net income of $0.310 billion for the twelve months ending May 31, representing a significant 74.57% year-over-year increase, and a 5-year net income compound annual growth rate (CAGR) of 5.39%, while also attracting the attention of institutional investors, with 37 hedge funds holding stakes in the company who invested a total of $1.27 billion.
The company is also expected to achieve significant operating margin expansion in the near future, driven by strong revenue growth and the improved utilization rate for new learning centers. In Q4, New Oriental Education & Technology’s (NYSE:EDU) revenue rose by 32.1% YoY to $1.13 billion, and the company has guided its top line for its core education services business to increase by between 31% YoY and 34% YoY for Q1 2025. This robust revenue growth is expected to drive an improvement in the company’s operating margin as the company’s new learning centers mature.
In August, New Oriental Education & Technology (NYSE:EDU) indicated its intention to consider additional dividend distributions in the future with the share repurchase program increased from $400 million to $700 million. The upsized share repurchase program is effective through May 31, 2025.
3. Baidu (NASDAQ:BIDU)
TTM Net Income: $2.70 Billion
5-Year Net Income CAGR: 4.07%
Number of Hedge Fund Holders: 42
Baidu (NASDAQ:BIDU) is a diversified technology company that operates the largest internet search engine in China. The company is undergoing a significant transformation, shifting its focus from an internet to an AI business, with a strong emphasis on autonomous driving technology.
Baidu’s (NASDAQ:BIDU) management is confident that AI will be a key driver of revenue growth in the future. The company’s AI cloud services are experiencing rapid growth, and its development of autonomous vehicles through the Apollo project has garnered significant attention. According to Fortune Business Insights, the autonomous driving market is forecasted to grow, with a CAGR of 32% over the next six years, reaching nearly $39 billion by 2030. Baidu’s (NASDAQ:BIDU) Apollo Go ride-hailing service positions the company to capitalize on this growing market.
By the end of 2024, Baidu (NASDAQ:BIDU) plans to deploy 1,000 RT6 robotaxis in Wuhan. The company’s latest RT6 model, at $27,500 is half the cost of its previous vehicles. A ride in Apollo Go Robotaxi also costs half compared to traditional ride-hailing services. The Apollo Go platform has the potential to revolutionize the autonomous ride-hailing industry and positions Baidu (NASDAQ:BIDU) to capitalize on the growing demand for autonomous driving technology.
Baidu’s (NASDAQ:BIDU) financial performance has been impressive, with a net income of $2.70 billion for the twelve months ending June 30, representing a significant 24.44% increase from the same period last year and compound annual growth rate (CAGR) of 4.07% in the last 5 years, indicates a steady and consistent track record of growth.
2. Trip.com (NASDAQ:TCOM)
TTM Net Income: $1.94 Billion
5-Year Net Income CAGR: 49.52%
Number of Hedge Fund Holders: 52
Trip.com (NASDAQ:TCOM) is a leading Chinese online travel agency that offers a comprehensive range of booking services for hotels, transportation, tours, and corporate travel. The company is headquartered in Shanghai and has a significant global presence, with over 30,000 employees based in 95 locations in China and 22 international branches.
Trip.com’s (NASDAQ:TCOM) net income for the twelve months ending June 30 was $1.94 billion, a 108.49% increase year-over-year. This strong growth is a testament to the company’s resilience and ability to adapt to changing market conditions. Over the past five years, Trip.com’s (NASDAQ:TCOM) net income has achieved a notable 49.52% compound annual growth rate (CAGR).
Trip.com (NASDAQ:TCOM) benefits from China’s restrictive internet service regulations, which create barriers to entry for international competitors. The company is well-established in China and is expanding its international operations, which offer significant growth prospects. According to Mordor Intelligence, China’s tourism and hotel market is expected to grow at a CAGR of 5.53% from 2024 to 2029, reaching a value of $504.22 billion.
As the largest Chinese travel platform, Trip.com (NASDAQ:TCOM) enjoys extensive connections within the travel ecosystem, enabling it to acquire new outbound travelers with minimal incremental advertising costs. This supports margin growth and positions the company for long-term success. Trip.com’s (NASDAQ:TCOM) revenue is expected to grow by almost 5% in 2024, driven by the recovery of outbound travel through its Chinese and ASEAN region platforms. Trip.com (NASDAQ:TCOM) is poised to maintain its leadership in China while expanding its international presence.
1. JD.com (NASDAQ:JD)
TTM Net Income: $4.31 Billion
5-Year Net Income CAGR: 38.36%
Number of Hedge Fund Holders: 59
JD.com (NASDAQ:JD) is a leading Chinese e-commerce company that specializes in retailing consumer electronics, apparel, and household products. In addition to its e-commerce platform, the company has a diverse range of operations, including logistics, marketing services, and property classifieds, as well as other innovative technology initiatives.
JD.com (NASDAQ:JD) is making significant investments in upgrading its third-party merchant platform with the goal of achieving a more optimized product mix that will propel stronger revenue growth and enhance profit margins. By doing so, the company is positioning itself for long-term success and competitiveness in the e-commerce market, ultimately benefiting its overall performance and sustainability. The company is also using cutting-edge technologies such as drones and AI to enhance its logistics and supply chain capabilities. Ariel Investments stated the following regarding JD.com (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfilment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
JD.com (NASDAQ:JD) has demonstrated exceptional financial growth, with a net income of $4.31 billion for the twelve months ending June 30, representing a significant 37.07% year-over-year increase and a 5-year net income compound annual growth rate (CAGR) of 38.36%, which is a testament to the company’s ability to consistently deliver strong financial performance.
While we acknowledge the potential of JD.com (NASDAQ:JD) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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