Leadership Strengths
Over the past three months, Chinese internet stocks have been among the strongest in the market. I Does the KraneShares CSI China Internet ETF pay dividends?KWEB – free report) is among the most followed Chinese ETFs in the United States. Before the recent pullback, the KWEB ETF had more than doubled since making a dramatic low in late October 2022.
Image Source: Zacks Investment Research
Due to the urgent and incessant meeting, investors who blinked or hesitated to invest in their minds with names related to the Chinese may have missed the move. However, after the recent pullback from these leaders, they may give investors a second chance.
All Pullbacks Are Not Created Equal
There are subtle attributes that investors should be aware of when balancing risk to reward pullbacks, including:
1. Early Pullbacks Offer Attractive Reward Risk: Generally, the first retracement of the 50-day moving average in a trend gives investors the best buying position. As the trend gets older and longer in the bird, the number of times you can “return to the cookie jar” decreases. A chip maker Lattice Semiconductor (LSCC – free report) a perfect example. Recently, the stock moved back to its 50-day moving average for the first time and found support before moving away again.
Image Source: Zacks Investment Research
2. Power and Distance Correspond: When it comes to the stock market, strength often breeds strength. In other words, the stronger the price trend is on the initial pullback, the more likely the trend is to continue.
3. Surprises often happen in the form of a trend: Stocks in bullish trends tend to stay in a bullish trend more often than not. For example, a stock that is trending higher into earnings is more likely to gap higher than decline after the results are released – all things being equal.
Chinese Internet Names Give Pullback Buyers a Second Chance
Investors who missed the big move in Chinese internet stocks over the past few months are getting a chance to bounce back. Three powerful words include Alibaba (FATHER – free report) , JD.com (JD – free report), again Vipshop (VIPS – Free Report). Each stock has more than doubled last year’s lows, has a Zacks Strong Buy rating, and is entering the 50-day moving average for the first time in the trend.
Image Source: Zacks Investment Research
Underlying Transaction Rates
Technical image is not the only positive attribute these stocks have. After a multi-year pullback in these stocks, valuations are becoming more attractive. For example, from a P/E perspective, BABA shares are at their most attractive levels since the beginning.
Image Source: Zacks Investment Research
Pictured: BABA P/E ratio since inception.
Analysts Bulled Up
Looking at the consensus estimates, analysts believe that earnings momentum has just started from a growth perspective. For example, over the past 60 days, analyst consensus estimates for JD’s Q2 earnings have risen 25%.
Image Source: Zacks Investment Research
