There are signs that the global economy is starting to slide, and China’s getting blamed again.
This morning’s overseas slide in copper prices is being pegged primarily to fears that Chinese demand for the industrial metal is waning.
Should investors dump their Chinese growth stocks now?
No.
For starters, Merrill Lynch’s move comes more on the concerns that external demand for Chinese products is diminishing. In other words, as bad as things may be in China, it’s even worse elsewhere. That’s still not a positive sign, naturally. If external orders dry up there will be less money going into the Chinese economy. However, at least it doesn’t mean that the weakness originated within China itself.
Oh, and let’s not get greedy. It’s true that China was growing at a 10% rate for many years until recently, but most countries would love to see GDP expand by 7.6% this year.
Then we get to the valuations. There are some solid Chinese companies trading at some ridiculously cheap earnings multiples.
Let’s take a look at five of China’s Internet companies that may be fetching cheaper than you think.
| Company | May 14, 2013 | 2013 P/E | 2014 P/E | My Watchlist |
|---|---|---|---|---|
| Baidu (NASDAQ:BIDU) | $92.84 | 18 | 15 | Add |
| 51job (NASDAQ:JOBS) | $57.03 | 20 | 17 | Add |
| NetEase.com (NASDAQ:NTES) | $59.80 | 12 | 11 | Add |
| SouFun (NYSE:SFUN) | $25.97 | 10 | 9 | Add |
| Qihoo 360 | $38.77 | 39 | 24 | Add |
Source: Yahoo!.
Some of the multiples are lower than others, but these are all companies growing a lot faster than their stateside equivalents.
High-five
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is China’s leading search engine. Despite the recent arrival of Qihoo 360 Technology Co Ltd (NYSE:QIHU) — another name on this list that I’ll get to shortly — with its own search engine last summer, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) still commands the lion’s share of this lucrative market. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is the only one of these five names trading lower than when I singled them out as cheap late last year, but it’s still growing at a healthy clip. Seriously, if you’re passing on Baidu.com, Inc. (ADR) (NASDAQ:BIDU) at just 15 times forward earnings at a time when the slower-growing global leader is fetching 17 times next year’s projected profitability nothing will ever please you.
51job, Inc. (ADR) (NASDAQ:JOBS) is an online job recruiter. Last week’s quarterly report wasn’t very inspiring. Its online recruitment services revenue grew by just 8% after years of double-digit top-line growth. Earnings also declined, falling short of Wall Street estimates after five straight quarters of bottom-line beats. 51job, Inc. (ADR) (NASDAQ:JOBS) is still in the right place at the right time in one of the few industries that China’s restrictive government wants to make sure keeps growing in cyberspace.
NetEase, Inc (ADR) (NASDAQ:NTES) is a pioneer in massive multiplayer online role playing games. It joins many smaller peers in trading at dirt cheap valuations. The bearish thesis is that China’s government will crack down on addictive virtual games, but NetEase, Inc (ADR) (NASDAQ:NTES) has been able to grow steadily through the hoops it has had to jump through over the years. Revenue, earnings, and its audience of gamers continue to grow.
SouFun Holdings Limited (ADR) (NYSE:SFUN) commands the lowest of multiples, but it’s also a company that’s sorely misunderstood. SouFun Holdings Limited (ADR) (NYSE:SFUN) operates an online portal related to real estate. Yes, China’s in a real-estate bubble. It will pop. However, SouFun Holdings Limited (ADR) (NYSE:SFUN) provides relevant info on home improvement projects and furniture purchases that transcend the feverish pace of actual housing sales.
Finally, we have Qihoo 360 Technology Co Ltd (NYSE:QIHU). The company behind China’s most popular Web browser and a suite of online security software has the highest earnings multiple on this list, but it’s also on pace for pretty spectacular growth. Wall Street’s targeting revenue to soar 64% this year and 40% next year. It’s also just starting to monetize its surprisingly popular search engine, and many analyst projections have yet to bake in material growth on that front.
The article 5 Chinese Stocks That Are Still Cheap originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends 51job, Baidu, and NetEase.com. The Motley Fool owns shares of Baidu.
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