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Chinese Stocks: Value Stocks or Traps?

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  • (0:30) - Chinese Stocks: Where’s The Value And Are They Traps?
  • (4:45) - Tracey’s Top Stock Picks
  • (17:10) - Episode Roundup: DL, BIDU, YY, STRP, BABA, TCEHY, JD, HUYA
  •                 Podcast@Zacks.com

 

Welcome to Episode #147 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.

The Chinese stocks have mostly pulled back in the last few months on the trade tensions. Are they cheap enough for value investors to take a look?

Could there be any deals among the BATS stocks? BATS is China’s equivalent of FANG.

Or do these stocks have attractive valuations but are really value traps?

Definition of a Value Trap

Value trap stocks look like value stocks with low P/Es and other low fundamentals like P/B and P/S ratios. They may even have all the classic low valuations.

But just because they are cheap doesn’t mean they aren’t a trap.

Value stocks can be a trap if a company’s earnings growth is on the decline. Sometimes stocks are cheap for a reason and it can be because the company is struggling to grow earnings.

Are Chinese Stocks Values or Traps?

1.       China Distance Education (DL - Free Report) is one of the truly cheap Chinese stocks as it has a forward P/E of 8.7. This is a small cap stock with a market cap of just $176 million, however. Year-to-date, shares have sunk 19.5%. It’s clearly a value, but is it a trap?

2.       Baidu (BIDU - Free Report) shares are down 27% in 2019 and have been underperforming the last 2 years. It has a low price-to-book ratio of just 1.5. But with the online advertising industry getting hit due to macro conditions in China, is that hitting Baidu’s earnings too?

3.       YY (YY - Free Report) is another cheap Chinese stock with a forward P/E of 10.2 and a PEG ratio of 0.7. It has that rare feature of both growth and value. And while shares have rebounded in 2019, they are still down 36% over the last year. Is it on track to grow earnings this year?

4.       Ctrip.com (CTRP - Free Report) has a price-to-book ratio of just 1.4, putting it in value territory but year-to-date the shares have soared 36%. How is the travel industry holding up in China?

5.       Alibaba (BABA - Free Report) ) shares are up 23% in 2019 but are down nearly 12% over the last year. Are they cheap enough for a value investor to consider? It trades with a forward P/E of 25. And how are those earnings looking?

Are any of the big, popular glamour Chinese stocks actually true value stocks right now?

Find out on this week’s podcast.  

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