In a report rolled out Wednesday, Stifel analyst George Askew shared his thoughts on the Chinese market selloff and a few opportunities he sees in U.S. traded Chinese stocks.
The analyst noted that the Chinese market selloff in Shenzhen and Shanghai has not only affected the stocks traded in those exchanges, but it has also taken a significant toll on Chinese Internet companies that trade on United States exchanges.
Don't Ignore China Completely
- Alibaba Group Holding Ltd BABA
- Vipshop Holdings Ltd - ADR VIPS
- Qihoo 360 Technology Co Ltd QIHU
- Jiayuan.com International Ltd DATE
The analyst sees solid fundamentals and catalysts ahead of each of the aforementioned companies – all Buy rated. In addition, several Hold rated stocks are becoming increasingly interesting amid the sell-off, Askew assured. Such potentials include:
- Baidu Inc (ADR) BIDU
- Ctrip.com International, Ltd. (ADR) CTRP
- SINA Corp SINA
He explained that, while the firm still sees fundamental challenges ahead of these stocks, “valuations increasingly reflect these challenges and with further declines the shares may become attractive, all else equal.”
Below is a look at the implications of the crisis for the Buy rated names mentioned above.
Alibaba – $120 Price Target
The main e-commerce player in China is benefiting from “improving mobile take-rates at a time that mobile GMV as a percentage of overall GMV has topped 50 percent,” the report explained. The analysts expect this to drive take rates higher in 2015 and 2016.
“There is no go-private impact on Alibaba and indeed Alibaba may be a beneficiary of the Chinese stock market volatility as it may create investment opportunities for the company in capital-hungry companies,” the note added.
Jiayuan.com – $8 Price Target
Stifel does not expect market volatility to impact the business of the number one dating site in China. Offers to acquire the company abound, and the analysts do not discard the possibility.
In the meantime, the company is profiting from a very strong matchmaking business, which the firm expects will more than double in size over the year. Moreover, new products could drive incremental revenue growth going forward.
Qihoo 360 – $88 Price Target
A recent takeout proposal (at $77 per share) is currently being evaluated, and analysts do not dismiss the possibility. Meanwhile, Qihoo is “moving forward with mobile search monetization in 2H15 and particularly 4Q15,” the analysts noted.
“In addition, new handsets from the Coolpad smartphone joint venture create opportunities to spark the company’s mobile ecosystem.”
Finally, the experts anticipate growth of roughly 140 percent in 2015 for the core desktop search business, which should in time support a year-over-year overall growth rate of approximately 45 percent.
Vipshop – $32 Price Target
Unlike most companies, Vipshop could benefit from a slowing of the Chinese consumer economy for it is the leading retailer of discounted apparel in the country. The analysts believe the company is well positioned to retrieve robust revenue and earnings growth in 2015 and 2016.
“Vipshop has a unique and sustainable business model in China anchored by a favorable and unique supply base that has marketplace characteristics, a very professional consumer-facing fulfillment / logistics / customer service proposition, and a flash sale selling model that supports urgency in transactions,” Askew added, concluding that “there is no go-private exposure” for the company.
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