Wall Street has been captivated by the volatility in Big Tech lately, and with good reason.
After being a perpetual outperformer in 2018 right through the day of its recent earnings report, Facebook FB, +2.75% is now in the red on the year after a massive single-day drop erased over $100 billion in market value. And while the bleeding at Netflix NFLX, +1.81% has been slower, the pain has been no less severe, as the streaming video giant is off 20% from its highs roughly a month ago.
Specific problems with growth at both companies drove those declines. But bigger picture, many analysts see these as tales of broader troubles. RBC has called for investors to underweight the tech sector as a whole, and Nomura is pointing to a big-picture movement away from growth stocks.
But the major indexes, including the tech-heavy Nasdaq-100 NDX, +1.36% seem to be hanging tough. In fact, the Nasdaq is up roughly 10% year-to-date even with the ugly Facebook and Netflix showings.
While bargain-hunting in Facebook and Netflix may be worth exploring, an even bigger opportunity in Big Tech is presenting itself via lesser-known stocks that are just as big and with just as much potential.
The catch? They’re based in China.
These stocks have growth stories that are just as impressive as the FAANGs — or even better. Most of China’s Big Tech plays are insulated from the political shenanigans between President Trump and Beijing. After all, computer code isn’t tangible and can’t be taxed at a port of call. And unlike U.S. tech stocks that have saturated their domestic market, the biggest growth engine for these stocks is consumer adoption at home — not in the U.S.
If you’re looking to buy the dip in Big Tech, here are five Chinese tech stocks to consider.
Tencent
Facebook isn’t the only Big Tech company that has lost over $100 billion in market value lately. Chinese tech giant Tencent Holdings 0700, +1.62% TCEHY, -2.38% is down over 20% from its March peak, but still boasts a market cap of roughly $430 billion.
Of course, in the long-term the story is much different with the stock rising 10-fold in the last decade. The fundamentals are equally impressive, with Tencent reporting 61% growth in revenue back in May — an amazing figure for a company of this size. And when it reports again on Aug. 15, investors can expect similarly impressive results.
That growth is thanks to a wide focus on every aspect of consumer tech, from mobile payments to videogames to streaming video to social networks, this stock is well-positioned to be part of China’s connected future. For patient investors, there are worse ideas than betting on this rapidly-growing megacap during this pullback.
JD.com
E-commerce giant Tencent, JD.com JD, +0.03% is no slouch with a $50 billion market cap. Crazily, that valuation is actually less than its 2017l top line, and projections are for $69 billion in revenue this year and $87 billion in fiscal 2019. Considering that U.S. tech companies frequently trade for tremendous premiums to sales or earnings, that seems like a huge bargain indeed.
Despite a brisk 33% growth in revenue in its last report, JD has been hit by both concerns about trade policies as well as a drop in earnings as it invests heavily in technology to fend off competition. But with big investors including both Tencent as well as Google GOOG, +0.50% GOOGL, +0.66% and big-box giant Walmart WMT, +0.59% investors who bet against JD.com are going up against some pretty deep-pocketed backers.
Shares hit a new all-time high in January, but have been choppy since then. The stock is down around 13% in 2018. Consider it an opportunity to get in on the Asian e-commerce megatrend at a bargain price.
Alibaba
Of course, we can’t talk about e-commerce in emerging markets without acknowledging Alibaba BABA, -1.44% In truth, it’s hard to put the stock on this list because it has been far less susceptible to pullbacks than other picks here. But with shares roughly flat year-to-date, now is as good a time as any for new money.
What’s not to like about Alibaba? Its 2014 IPO was the largest global offering in history, raising over $21 billion. Shares were choppy for the first several months of trading, but are up 130% in the last three years to handily outperform Google parent Alphabet, Apple AAPL, +2.92% and Netflix.
And with projected revenue growth of roughly 60% this year and earnings set to soar 25%, it’s hard to imagine that momentum slowing down.
Shares are down about 15% from their 52-week high back in June, which is about as big of a dip as you may ever find in this stock. Strike now while the iron’s hot.
iQIYI
iQIYI IQ, -5.20% may not be as well-known in the West, but is increasingly being referred to as the “Netflix of China.” This streaming video player made its debut on the Nasdaq in March, and while the timing was terrible given tensions with China and fears of a decline in big tech, that hasn’t mattered much; the stock has more than doubled from its first day of trading and now boasts a market capitalization of $20 billion.
The business model is simple for FAANG investors to understand. IQ provides a collection of internet video content, including original programming that it provides to members. It also dabbles in live broadcasting and online gaming services, with the goal of being your one-stop destination for all things streaming.
Of course, it’s not yet profitable as it spends heavily on this model. However, that didn’t stop this stock from rising 6% immediately after earnings on Tuesday with impressive revenue growth of 51%.
With a tailwind of both changing consumer behavior and broad growth potential in Asia, it’s hard to see short-term volatility as a sign of serious distress. Shares are off about 25% from their June highs, but long-term investors may want to buy.
NetEase
NetEase NTES, -1.43% is perhaps one of the least sexy Big Tech stocks out there. This $30 billion diversified company’s services include e-commerce support, advertising, email and videogames, among other things.
It’s not a stock that’s as easy to talk about, because the narrative isn’t as dynamic. There’s no single megatrend like streaming or e-commerce lifting the stock to new heights. It also almost exclusively plays in China, making it relatively unknown to Western investors.
But the stock is listed on the Nasdaq, and has some of the most consistent growth numbers out there with 20% revenue expansion expected this year and another 25% growth in 2019. It also expects to buy back $2 billion worth of stock, in a move right out of Silicon Valley’s playbook.
Oh yeah, shares are up more than 300% in the last five years, even if they have declined about 25% in 2018.
Dip buyers who want a proven stock that has been punished unfairly may want to dig into NetEase for a closer look. This China stock has all the hallmarks of a long-term growth story that’s trading at bargain prices.
