Trump Moderates Tone on China: 3 Chinese Stocks to Watch

President Donald Trump refrained from imposing China-specific tariffs on his first day in office and signed an executive order allowing the popular Chinese app TikTok to continue operating in the United States. On Monday, while U.S. stock markets were closed, the Chinese yuan surged, and Hong Kong stocks experienced a significant rally, sparking renewed interest in Chinese assets.

In recent years, Chinese stocks have underperformed, making it easy for investors to look elsewhere. However, completely avoiding China could be a mistake. As one of the largest economies in the world, China is home to many companies with outstanding financial performance. The market's recent slump has left these high-quality companies trading at significantly lower valuations, presenting potential investment opportunities.

1. Baidu

As China's top search engine—filling the void left by Google's absence—Baidu offers more than just search services. It's a major player in areas like autonomous driving, robotics, machine learning, computer vision, and artificial intelligence.

Previously grouped with Alibaba and Tencent as part of the BAT trifecta (China's equivalent to the U.S. "Magnificent Seven"), Baidu's stock has notably lagged behind in recent years. However, its prospects are improving. Baidu has consistently delivered strong results, with six consecutive quarters of double-digit earnings beats before a slight miss in its most recent report. Despite this, its stock has continued to drift lower, now trading at less than eight times trailing adjusted earnings.

Baidu is a cash-generating powerhouse. With $18.3 billion in trailing revenue, it boasts an enterprise value that is just 1.3 times its revenue. Combined with its double-digit net margins, Baidu offers an attractive financial profile at a compelling price.

2. Alibaba

Alibaba, the e-commerce giant of the world's most populous country, has also seen its growth slow in recent years. Among its recent financial reports, only one showcased double-digit revenue growth. The company faces intense competition from deep-discount rivals like Shein and Temu's parent, PDD Holdings.

However, Alibaba remains a dominant force in e-commerce. It turned November 11—"Singles' Day"—into a shopping extravaganza in 2009, growing revenues by a staggering 250 times since its inception. Recently, Alibaba has been divesting non-core assets, not as a retreat but to sharpen its focus on serving shareholders more effectively. Analysts expect revenue and profit growth to accelerate in the new fiscal year beginning in April.

Currently, Alibaba trades at just nine times forward adjusted earnings and provides semiannual distributions, offering a yield of 2.5%. As it regains market share in China's expanding economy, Alibaba presents a patient, long-term investment opportunity.

3. Qifu Technologies

Compared to giants like Baidu and Alibaba, Qifu Technologies is a smaller player with a market cap of $5.6 billion. However, with $2.3 billion in trailing revenue, it is far from insignificant. Qifu operates a credit platform powered by proprietary AI-driven credit assessment tools, serving 55.2 million cumulative users and working with 162 financial service partners.

Qifu focuses on the rural market, a segment often overlooked by larger financial institutions. In March of last year, it announced a stock repurchase program, followed by a second round in November. Currently, Qifu offers a dividend yield of 3.3%, and its stock trades at just six times its forward profit target.

These three Chinese stocks—Baidu, Alibaba, and Qifu Technologies—represent attractive opportunities in a market that has been under pressure but still holds significant potential for growth.