China-based stocks are deeply out of favor and are performing worse than the U.S. market indices. The Nasdaq (QQQ) fell 6.5% in the last month but Alibaba (NYSE:BABA) fell 17.5%. Investors should think twice before going against the market forces.
Alibaba reported exceptionally strong quarterly earnings on May 15. Ahead of the ER, the stock topped over $190, so profit-taking is setting off the stock’s decline. In the fourth quarter, Alibaba reported revenue growing 51% to $13.93 billion. Earnings of $1.47 a share beat consensus by $0.96. Alibaba is fundamentally strong and getting stronger. Buying the stock is a bet on the U.S.-China trade war getting resolved.
Baidu (NASDAQ:BIDU), which fell from $150 to $114.47 in the last few weeks, is getting punished because of its weak second-quarter outlook. In Q1, revenue grew 15% but costs rose faster than that, up 53%. Though DAU rose 28% for its app, investors no longer care about user activity, especially when net income fell 80%.
Baidu said it would buy back $1 billion worth of shares. So far, that did little to help stabilize the share price.
Weibo (NASDAQ:WB), best known for its WeChat app, reported Q1 revenue growing 14.1% to $399 million. Investors reacted by sending the stock 18% lower last week. Again, investors could speculate a trade war resolution, which would attract investors in WB stock. At 17.7 times earnings and 12 times forward earnings, Weibo is compelling for those willing to hold China-based companies for a few years. The argument applies to JD.com (NASDAQ:JD) and Baozun (NASDAQ: BZUN) too.
