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Bull Market is Back for Red Dragon: 3 Solid Buys

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China stocks finished higher for the fifth straight session on Jul 6, with its flagship bourses breaking into bull territory. The Shanghai Composite Index jumped 5.7%, hitting its highest since early 2018. The Shanghai Composite also registered its best one-day percentage gain since July 2015. The index has now climbed more than 20% from its March lows. The Hang Seng Index, in the meantime, was up 3.8% into the bull market as well.
 
China’s indexes are the latest major stock market bourses to crack into the bull market territory. The broader S&P 500 currently rallied almost 40% from its low hit on Mar 23, while Germany’s DAX has surged more than 50% since Mar 18. Similarly, the FTSE 100 in London, Japan’s Nikkei 225 and South Korea’s Kospi are up more than 20% from their March lows.
 
By the way, some of the best performers on Jul 6 were China stocks. After all, CSI SWS Securities Index rose 9.8% to its highest level since November 2016. This is because regulators in Beijing relaxed rules on margin financing or the practice of investing with borrowed funds. Margin lending increased considerably in recent times, with margin loans to buy stocks reaching a staggering 1.2 trillion yuan on Jul 3, the highest since 2015.
 
Ma Ting Ting, an analyst for China securities firm Guosheng Securities, added that “the signal from the regulators is clear: They are pushing for the development of margin trading and short selling business in China, and we expect regulators to continue to boost stock market activity and try to guide even more funding from banks and insurers into the stock market.”
 
The broader rally however comes after a major state-owned financial newspaper said that China now needs a bull market to build strength, indicating further government support for the stock market and reviving memories of the bull run of 2015 when authorities required a stock-driven economic recovery.
 
The state-owned China Securities Journal said on Jul 6 that “cultivating a healthy bull market is important for creating new opportunities, and that in the post Covid-19 world, the economy needs a healthy bull market more than ever.”
 
A recovering economy coupled with reforms in the capital market including a revamp of the Shanghai index helped boost investors’ sentiments.
 
Talking about China’s economy, the country’s services PMI recently witnessed its best jump in a decade. China’s June Caixin Services Index came in at 58.4 versus 55 in May. At the same time, the Caixin manufacturing PMI read 51.2 in June compared with 50.7 in May. The Caixin manufacturing PMI in fact hit its highest level since December 2019, as most parts of the country had the coronavirus outbreak under control.
 
Thus, the focus is obviously on the best China stocks that are poised to cash in on the bullish sentiments. Here’re three such stocks that are worth a buy now –
 
JD.com
 
JD.com, Inc. (JD - Free Report) is an e-commerce company in the People’s Republic of China. The stock has done pretty well through the year. Its shares are up 79.6% on a year-to-date basis.
 
 
In fact, its expected earnings growth rate for the current year is 20.2% compared with the Internet - Commerce industry’s projected increase of 3.2%. Moreover, the Zacks Consensus Estimate for its current-year earnings has climbed 76.1% over the past 60 days. 
 
 
Needless to say, online retailers like JD.com have been gaining ground compared to traditional retailers for almost two decades, and the coronavirus outbreak has only accelerated the process as more number of people continue to stay at home. JD.com currently boasts 32 million active users and the company sells almost everything under the sun, from electronics, apparels, appliances to food and more.
 
JD.com in recent times has gained immense popularity because of its rapid delivery, including next-day or even sometimes same-day shipping of many of its products. Thus, much like Amazon continues to be one of America’s top investments, JD.com is one of best China-based stocks you can own. Currently, JD.com has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.
 
Tencent Holdings
 
Tencent Holding Ltd. (TCEHY - Free Report) is one of the world’s largest video-game and social media companies. Its gaming and social media revenues have increased at a steady clip amid the pandemic but its colossal growth has come from investments in fintech and mobile payments with the help of its Weixin and WeChat apps.
 
Interestingly, Tencent’s market cap of $651.48 billion is currently more than that of Alibaba Group Holding Limited (BABA - Free Report) . Presently, Tencent has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 8.8% north over the past 60 days. 
 
 
The company’s expected earnings growth rate for the current year is 24.5%, in contrast to the Internet - Services industry’s projected decline of 2.1%. Lest we forget, Tencent’s shares have gained 41.6% year to date.
 
 
Sohu.com
 
Sohu.com Inc. (SOHU - Free Report) is a leading provider of online advertising, search, media and gaming services in China. Sohu is well poised to benefit from the growth potential of the China online gaming market. Per ResearchAndMarkets, the China gaming market is expected to see a CAGR of 14% from 2019 to 2024.
 
Additionally, Sohu’s investment in online videos is expected to boost the top line. Improved content availability on media portal platform as a result of partnerships with quality content providers is a major upside.
 
Sohu.com currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has risen 31% over the past 60 days. 
 
 
The company’s expected earnings growth rate for the next quarter is 103.6%, more than the Internet – Services industry’s projected rise of 4.9%. Shares of Sohu.com have already picked up momentum, gaining 30.9% over the past one-month period. 
 
 
Zacks’ Single Best Pick to Double 
 
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
 
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
 
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.