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With thousands of stocks open for trading each day in the U.S stock market, how can investors identify those that are showing strength?
A variety of ways exist, but one of the fastest ways to find potential leaders is to look for stocks bucking a weak market trend – also known as relative strength. With the stock market deep in the red on Tuesday, investors can simply screen their database for stocks that are green. Since most stocks follow the market’s direction, the intuition is that securities that hold up well in a down market are more likely to outperform when the market tide turns. Below are three Chinese stocks that bucked the trend in Tuesday’s down session:
1. Yum China Holdings (YUMC) – Chinese stocks were clear winners on Tuesday and are starting the year with notable relative strength. Yum China is one such name. YUMC is the parent company of well-known restaurants such as Kentucky Fried Chicken, Pizza Hut, and Taco Bell. The company is independent of the U.S.-focused Yum Brands YUM. YUMC holds an impressive Zack’s Ranking of 2 and is consolidating in a bullish manner after retaking its key moving averages.
Image Source: Zacks Investment Research
Pictured: YUMC has recaptured its key moving averages and is uptrending.
Zack’s Consensus Estimates predict that YUMC will grow EPS by a healthy 56.67% next year.
Image Source: Zacks Investment Research
2. Yum China was not the only Chinese name to exhibit relative strength on Tuesday. Chinese internet stocks went on a tear compared to U.S equities. The China Internet ETF KWEB gained ground, bolstered by names such as Bilibili Inc BILI. BILI provides online videos, live broadcasting, and mobile games through its entertainment platform. Tuesday, shares launched higher on expanding volume. The stock has been trending higher in recent weeks as the Chinese government has eased restrictions. Next quarter, earnings estimates suggest that BILI will outpace its industry and the S&P 500.
Image Source: Zacks Investment Research
Pictured: BILI is expected to outperform from an EPS perspective this year.
The technical and fundamental action is indicative of a potential leader. Other Chinese ADRs such as Pinduduo Inc PDD, 360 Digitech Inc QFIN, and Hello Group Inc MOMO also flashed green sessions.
Image Source: Zacks Investment Research
Pictured: Chinese stocks are outperforming led by MOMO which is up by more than 70% in the past few months.
3. In recent years there has been a lack of recent IPOs. The few IPOs that have emerged have failed investors. Take Coinbase COIN or Robinhood HOOD for example. The stocks came public at bloated valuations and a ton of hype only to fall by more than 50% over the past year.
Image Source: Zacks Investment Research
Pictured: Recent IPOs like HOOD and COIN have performed poorly.
Atour Lifestyle ATAT, a Chinese hotel operator with more than 500 locations, is the exception. Since going public in November, the stock is up nearly 50%.
Image Source: Zacks Investment Research
Pictured: ATAT is up the exception to poor IPO performance. The stock is up nearly 50% since inception.
Shares of Atour have not only bucked the IPO trend but have also performed well in an overall poor market trend. Atour also has a potential catalyst – the reopening of Chinese tourism after months of stringent lockdowns. For these reasons, ATAT shares should be on investor’s lists as potential new merchandise.
Overall, Chinese stocks have shown a complete change of character in recent weeks from both an EPS and technical perspective. Investors should watch to see if the recent strength has legs.
Zacks Top 10 Stocks for 2023
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Yum Brands, Inc. (YUM) : Free Stock Analysis Report
Hello Group Inc. Sponsored ADR (MOMO) : Free Stock Analysis Report
KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
Bilibili Inc. Sponsored ADR (BILI) : Free Stock Analysis Report
Pinduoduo Inc. Sponsored ADR (PDD) : Free Stock Analysis Report
360 DigiTech, Inc. Sponsored ADR (QFIN) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
Atour Lifestyle Holdings Limited Sponsored ADR (ATAT) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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