An 'Excellent' Entry Point For Chinese E-Commerce Stocks

While investors worldwide are scrambling to determine what is going on with the Chinese stock market, Morgan Stanley analyst Robert Lin released a new report this week outlining several buying opportunities that the Chinese market chaos has created. According to Lin, certain Chinese Internet stocks with strong, long-term growth potential are now trading at attractive valuations.

Catalysts

Lin believes large-cap Chinese e-commerce companies have the most long-term growth potential due to their dominant market positioning, large amounts of cash and relatively stable core margins.

Related Link: Alibaba Might Not Be What You Think It Is

“We see two positive catalysts: 1) MSCI China’s inclusion of major Chinese ADRs, which favors large-cap companies like Alibaba, JD and Vipshop; and 2) potential dual-listing of A-shares, given approval for 100 percent foreign ownership in e-commerce companies in China,” Lin explained.

Top Pick: Alibaba Group Holding Ltd (NYSE: BABA)

Alibaba is Morgan Stanley’s top pick among Chinese stocks. Lin cites growing mobile ad load in Q2 as one indicator of the recent strength of Alibaba’s business. He believes that the U.S. market has not yet priced in the latest ad load numbers and points out that the stock’s current projected 2016 P/E is 24 percent below its post-IPO average level.

Other Top Picks

Alibaba sits atop Morgan Stanley’s list of six top Chinese Internet stocks to buy on the dip, but the firm has Overweight ratings on each of the top four companies as well. Here’s the full list, from most-preferred to least-preferred:

• 1. Alibaba
• 2. Vipshop Holdings Ltd - ADR (NYSE: VIPS)
• 3. JD.Com Inc(ADR) (NASDAQ: JD)
• 4. Baozun Inc (ADR) (NASDAQ: BZUN)
• 5. Jumei International Holding Ltd(ADR) (NYSE: JMEI)
• 6. E-Commerce China Dangdang Inc (ADR) (NYSE: DANG)

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