Which Chinese Stock is Wall Street’s Top Pick Heading into 2023?

High inflation and fears of an economic slowdown have been a common theme for global stocks this year. However, Chinese stocks have also had to deal with country-specific risks, including the disruptions led by COVID, delisting concerns and growing tensions between the US and China. The easing of COVID-19 restrictions in recent days has revived investors’ hopes. Nevertheless, uncertainty still prevails due to increasing COVID-19 cases. Amid this backdrop, we used TipRanks’ stock comparison tool to compare Nio (NYSE: NIO), Alibaba (NYSE: BABY), and Baidu (NASDAQ: BIDU) against each other to select the most attractive Chinese stock.

Nio (NYSE: NIO) Stock

Production disruptions have hit Nio and other Chinese electric vehicle (EV) makers hard this year. The company increased its production to ensure that it ends the year on a strong note. Earlier this month, Nio reported deliveries of 14,178 vehicles for November, reflecting 30.3% year-over-year growth and about 41% month-over-month increase.

The company aims to deliver between 43,000 and 48,000 vehicles in the fourth quarter, reflecting year-over-year growth of 71.8% to 91.7%. The easing of COVID restrictions bodes well for Nio’s growth targets.

Looking ahead, Nio aims to boost its sales and improve its profitability, backed by the launch of several new models and its expansion in Europe. During the Q3 earnings call, the company said it aims to launch five new models in the first half of 2023. Recently, NIO’s CEO William Li announced that the company will launch two new cars at the NIO Day 2022 event expected to be held on December 24.

What is the forecast for Nio Share?

Wall Street is cautiously optimistic about Nio stock, with a Moderate Buy consensus rating based on eight Buys and four Holds. The average Nio stock price target of $16.81 implies nearly 45% upside potential from current levels. Shares are down 63% year-to-date.

Alibaba (NYSE: BABA ) Stock

Regulatory crackdown, the COVID-19 situation in China and increasing competition have taken a toll on Alibaba in recent quarters. The e-commerce giant’s revenue grew by 3% in the fiscal second quarter (ended September 30, 2022). While Q2 FY23 revenue improved compared to the fiscal first quarter, it was behind analysts’ estimates. Additionally, investors were also concerned about the slowdown in the company’s cloud computing revenue growth to 4%, compared to 10% in Q1 FY23.

Amid a tough environment, Alibaba continues to drive cost efficiencies, which helped it drive a 15% growth in its Fiscal Q2 earnings to RMB 12.92 ($1.82) per ADS. Alibaba expects its businesses to do well once the macro situation in China starts to improve.

What are analysts saying about Alibaba stock?

Benchmark analyst Fawne Jiang feels the weakness in Alibaba’s Fiscal Q2 results and “soft” Q3 outlook reflects the impact of difficult macro conditions and COVID mobility restrictions on growth, particularly on Alibaba’s core customer management revenue (CMR). CMR indicates revenue that Alibaba derives from services such as marketing that it provides to merchants on the Taobao and Tmall e-commerce platforms.

While Jiang feels that Alibaba is “not out of the woods in terms of a fundamental turnaround,” she is bullish on the macro environment in FY24 and expects a recovery in CMR growth with the gradual reopening of China’s economy. Jiang lowered her price target for Alibaba shares to $180 from $206, but maintained a Buy rating.

The Strong Buy consensus rating for Alibaba stock is supported by 15 unanimous Buys. The average BABA stock price target of $133.73 implies 54.1% upside potential. BABA shares are down nearly 27% year-to-date.

Baidu (NASDAQ: BIDU ) Stock

Search engine giant Baidu delivered market-beating results for the third quarter, fueled by strength in the company’s AI cloud revenue and gradual recovery in its online marketing business. Revenue grew 2% year-over-year to RMB 32.5 billion ($4.57 billion), while adjusted earnings per ADS increased 15% to RMB 16.87 ($2.37). Baidu’s efforts to control costs and move away from certain lower-margin businesses drove its profitability in the third quarter.

While Baidu’s ad revenue fell 4% year-over-year, it grew 10% compared to the second quarter. The company’s offline marketing revenue grew 25%, fueled by AI Could and other AI-powered businesses.

Baidu continues to invest in its AI businesses, including AI Cloud and intelligent management, to boost its long-term growth. Revenue from AI Cloud increased 24% in the third quarter and is a key growth driver for Baidu’s non-advertising revenue. Apollo Go, Baidu’s robotaxi business, which completed more than 474,000 trips in the third quarter, reflects the growing strength of the company’s autonomous ride-hailing business.

What is the target price for Baidu?

Susquehanna analyst Shyam Patil remains bullish on Baidu despite persistent macro uncertainty. The analyst highlighted the company’s leading position in China’s search market, strength in the feed market and its dominant position in AI applications. Patil cut his price target on Baidu shares to $150 from $195, but maintained a Buy rating.

Overall, Wall Street has a Moderate Buy consensus rating on Baidu stock based on 12 Buys and six Holds. The average BIDU stock price target of $148.06 indicates 31.5% upside potential. Baidu stock has fallen more than 24% this year.

Closure

Wall Street seems more optimistic about Alibaba than Nio and Baidu and estimates higher upside potential in BABA stock than the other two Chinese stocks. Despite the slowdown in Alibaba’s key businesses due to macro challenges, analysts seem confident about the company’s long-term potential in high-growth markets, such as cloud computing.

Nevertheless, investors should exercise caution and consider all the risks associated with Chinese stocks before making an investment decision.

Disclosure