An 'Excellent' Entry Point For Chinese eCommerce Stocks

While investors worldwide are scrambling to determine what is going on with the Chinese stock market, Morgan Stanley analyst Robert Lin released a new report this week outlining several buying opportunities that the Chinese market chaos has created. According to Lin, certain Chinese Internet stocks with strong, long-term growth potential are now trading at attractive valuations.
 

Catalysts
Lin believes large cap Chinese eCommerce companies have the most long-term growth potential due to their dominant market positioning, large amounts of cash and relatively stable core margins.

“We see two positive catalysts: 1) MSCI China’s inclusion of major Chinese ADRs, which favors large-cap companies like Alibaba, JD and Vipshop; and 2) potential dual-listing of A-shares, given approval for 100% foreign ownership in eCommerce companies in China,” Lin explains.

Top pick: Alibaba Group Holding Ltd BABA
Alibaba is Morgan Stanley’s top pick among Chinese stocks. Lin cites growing mobile ad load in Q2 as one indicator of the recent strength of Alibaba’s business. He believes that the U.S. market has not yet priced in the latest ad load numbers and points out that the stock’s current projected 2016 P/E is 24 percent below its post-IPO average level.

Other top picks
Alibaba sits atop Morgan Stanley’s list of six top Chinese Internet stocks to buy on the dip, but the firm has Overweight ratings on each of the top four companies as well. Here’s the full list, from most-preferred to least-preferred:

1. Alibaba
2. Vipshop Holdings Ltd VIPS
3. JD.com Inc JD
4. Baozun Inc BZUN
5. Jumei International Holding Ltd JMEI
6. E-Commerce China Dangdang Inc DANG