Goldman Sachs China Stocks: Top 10 Stock Picks
In this article, we will be taking a look at Goldman Sachs' China stocks: top 10 stock picks. To skip our detailed analysis of Chinese market dynamics today, you can go directly to see Goldman Sachs China Stocks: Top 5 Stock Picks.
US-China Rivalry
Chinese companies and news have managed to remain a top interest for American governments, businesses, and investors for a long time now because of the ongoing US-China tensions when it comes to competing in the global market. The US-China trade war has continued for years now, with both countries imposing tariffs and other trade restrictions on each other. For example, the US and China both imposed heavy tariffs on each other in 2018 and 2019, which some consider to be the move that kickstarted the major trade conflict between the two. Because of these heightened tensions, companies even today are having to struggle for key positions in the Chinese market, which otherwise has proven itself to be a lucrative opportunity. On September 8, Dewardric McNeal, the managing director at Longview Global, joined CNBC's 'Fast Money' to discuss this conundrum and the status of US-China market tensions today. Here's what he had to say on the matter:
"The real question is: have we entered an excludatory, retaliatory, tit-for-tat cycle like we saw during the trade war. If we have, and it's possible that we have, then there are some sectors, some companies, that I think will have some challenges. I think in aviation, Boeing - I think China an alternative in their mind. They're happy to play airbus off of Boeing. They also have a domestic brand, the Comac C919, or the C929 as well, so they think they have an alternative there. Automobiles, look, Tesla, we've been talking about this for quite some time, GM, possibly, are at risk with BYD."
McNeal went on to discuss how Chinese companies seem to be posing a significant threat to American companies in select sectors today because of their progress, development, and growth in several markets, including the American and European markets. He believes that companies need to get into a "competition mindset" if they wish to beat Chinese competitors at this game because the Chinese "have their own widgets" which they want to sell in both the Chinese market and in third markets across the globe.
Apple vs. Huawei
These developments should not come as a surprise for those who have been keeping track of China's economic and trade developments over the past few years. The country is dedicated to its internal development so that it is able to become reliant on itself instead of its Western competitors, according to McLean. China is also proving its worth in the tech space, particularly with the battle between Apple Inc (NASDAQ:AAPL) and Huawei, since the latter's release of a 5G smartphone that some think can rival the big tech giant's iPhone in performance while also being significantly cheaper. Here's what McLean said on this front:
"This Mate 60 is, I think, an impressive phone. I think it surprised Washington for sure, but it's seven nanometers. Apple, in a couple of days here, will debut their 15 pro. That's a three nanometer chip. So, you know, there's still a lot of room here between seven nanometers and three nanometers. But the Chinese are very comfortable that they don't have to be the best, they just have to be good enough to dominate their market."
Considering the China expert's take on this matter, it becomes evident that while the US may still be considered to be in the lead, China is catching up fast. Even if it doesn't catch up, its goal at this point is merely to establish market dominance by providing alternatives to American products that are either better in performance or in pricing. As a result of this, many investors are gaining a deeper interest in several Chinese companies, and Goldman Sachs is no exception to this. The institutional investor owns several Chinese stocks, including Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and JD.Com, Inc. (NASDAQ:JD). We have thus compiled a list of their Chinese holdings to show investors which companies can be considered to be some of the top China stocks to buy today or the best Chinese stocks to buy in 2023.
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Our Methodology
We took a look at Goldman Sachs' second quarter 13F holdings to find their top 10 Chinese stock holdings for that quarter. They are ranked based on the institutional investor's stake value in the company, from the lowest to the highest value. We also mentioned hedge fund information for each stock by using Insider Monkey's hedge fund data for the second quarter.
Goldman Sachs China Stocks: Top Stock Picks
10. XPeng Inc. (NYSE:XPEV)
Goldman Sachs' Q2 Stake Value: $70.1 million
Number of Hedge Fund Holders: 17
On August 21, Ming Hsun Lee, an analyst at Bank of America Securities, upgraded shares of XPeng Inc. (NYSE:XPEV) from Neutral to Buy. The analyst also raised the firm's price target on the stock from $16.30 to $22.
XPeng Inc. (NYSE:XPEV) is an automobile manufacturing company that specializes in manufacturing and marketing smart electric vehicles (EVs) in China. The company's cars include SUVs under the G3, G3i, and G9 names, four-door sports sedans under the P7 and P7i names, and family sedans under the P5 name. It is based in Guangzhou.
XPeng Inc. (NYSE:XPEV) was spotted in the 13F holdings of 17 hedge funds at the end of the second quarter. Their total stake value in the company was $131.8 million.
Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and JD.Com, Inc. (NASDAQ:JD), XPeng Inc. (NYSE:XPEV) is a Chinese stock Goldman Sachs has heavily invested in.
9. Baidu, Inc. (NASDAQ:BIDU)
Goldman Sachs' Q2 Stake Value: $99.4 million
Number of Hedge Fund Holders: 36
Baidu, Inc. (NASDAQ:BIDU) is an interactive media and services company that offers internet search services in China. The company is based in Beijing, and it operates through its Baidu Core and iQIYI segments. It offers the Baidu App to access search, feed, and other services on mobile devices, Baidu Search to access its search and other services, Baidu Feed to provide personalized timelines based on user demographics and interests, and Haokan, a short video app.
Our hedge fund data for the second quarter shows 36 hedge funds holding stakes in Baidu, Inc. (NASDAQ:BIDU), with a total stake value of $1.8 billion.
As of August 29, Rob Sanderson, an analyst at Loop Capital, maintains a Buy rating on shares of Baidu, Inc. (NASDAQ:BIDU). The analyst also placed a price target of $190 on the stock.
Ariel Investments was the most prominent shareholder in Baidu, Inc. (NASDAQ:BIDU) at the end of the second quarter, holding 2.8 million shares in the company.
8. JD.Com, Inc. (NASDAQ:JD)
Goldman Sachs' Q2 Stake Value: $107.4 million
Number of Hedge Fund Holders: 64
Holding 21.1 million shares in the company, Tiger Global Management LLC was the most prominent shareholder in JD.Com, Inc. (NASDAQ:JD) at the end of the second quarter.
JD.Com, Inc. (NASDAQ:JD) is a broad-line retail company providing supply chain-based technologies and services in China. The company is based in Beijing. It offers computers, communication, and consumer electronics products alongside home appliances and general merchandise products such as food, beverage, and fresh produce, baby and maternity products, and furniture and household goods, among more.
A Buy rating was maintained on shares of JD.Com, Inc. (NASDAQ:JD) on August 17 by Alicia Yap, an analyst at Citigroup. The analyst also placed a $64 price target on the stock.
A total of 64 hedge funds held stakes in JD.Com, Inc. (NASDAQ:JD) in the second quarter. Their total stake value in the company was $2 billion.
The following is what Baron Funds had to say about JD.Com, Inc. (NASDAQ:JD) in its first-quarter 2023 investor letter:
“JD.com, Inc. (NASDAQ:JD) is one of the three largest e-commerce platforms in China. Shares declined after the company reported a slowdown in fourth quarter sales and commented that deliberate culling of unprofitable SKUs would also be a drag on headline revenue growth in the first half of 2023. We believe the slowdown was driven by the peak in Chinese COVID lockdowns, which have since ended, and the elimination or reduction of unprofitable business is better for long-term margins and returns on capital. We remain investors.”
7. NIO Inc. (NYSE:NIO)
Goldman Sachs' Q2 Stake Value: $153.1 million
Number of Hedge Fund Holders: 19
NIO Inc. (NYSE:NIO) was seen in the portfolios of 19 hedge funds in the second quarter, with a total stake value of $120.5 million.
NIO Inc. (NYSE:NIO) is another automobile manufacturing company on our list. It also designs and develops smart electric vehicles for sale in China. The company's cars include five and six-seater electric SUVs and smart electric sedans. It also offers power solutions and is based in Shanghai.
Vijay Rakesh, an analyst at Mizuho, maintains a Buy rating on shares of NIO Inc. (NYSE:NIO) as of August 30. The analyst also placed a price target of $18 on the stock.
Soros Fund Management was the largest shareholder in NIO Inc. (NYSE:NIO) at the end of the second quarter, holding 115.3 million shares in the company.
6. Trip.com Group Limited (NASDAQ:TCOM)
Goldman Sachs' Q2 Stake Value: $157.3 million
Number of Hedge Fund Holders: 44
Trip.com Group Limited (NASDAQ:TCOM) is a consumer discretionary company operating in the hotels, resorts, and cruise lines industry. The company operates as a travel service provider for accommodation reservations, transportation ticketing, packaged tours, and in-destination corporate travel management. It is based in Shanghai.
At the end of the second quarter, we saw 44 hedge funds holding stakes in Trip.com Group Limited (NASDAQ:TCOM). Their total stake value in the company was $1.3 billion.
Fawne Jiang, an analyst at Benchmark, reiterated a Buy rating on shares of Trip.com Group Limited (NASDAQ:TCOM) on July 12. The analyst also maintained a price target of $55 on the stock.
Artisan Partners made the following comments about Trip.com Group Limited (NASDAQ:TCOM) in its fourth-quarter 2022 investor letter:
“Trip.com Group Limited (NASDAQ:TCOM), a Chinese online travel agency, was the second-largest contributor to return in 2022. Trip.com is the dominant supplier of online travel reservations and is expected to benefit from China’s loosening COVID-19 restrictions on both domestic and international travel. Management of Trip.com has wisely spent the COVID-19 lockdown period reinforcing and improving the company’s market position and reducing unnecessary costs. We expect earnings to boom over the next year as travel picks up. Other investors appeared to agree, pushing the share price up 42% in 2022.”
Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and JD.Com, Inc. (NASDAQ:JD), Trip.com Group Limited (NASDAQ:TCOM) is a Chinese stock that is highly popular among many investors, including Goldman Sachs.
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Disclosure: None. Goldman Sachs China Stocks: Top 10 Stock Picks is originally published on Insider Monkey.