Cathie Wood is one of the most popular investors on Wall Street today. Wood’s ability to identify disruptive companies has created massive wealth for investors in the last year. The founder of Ark Invest, Cathie Wood’s innovative suite of ETFs have managed to gain over 100% in total returns since May 2020.
Given these market-beating returns investors are now glued to Ark Investment’s portfolio purchases that may help them build long-term wealth. Here, we look at three Chinese stocks that are part of Cathie Wood’s Ark Invest portfolio.
JD.com (NASDAQ: JD)
The first stock on our list is JD.com – one of the largest e-commerce companies in the world. Shares of JD.com are undervalued despite tripling in the last five years. JD.com stock is down 30% from record highs after the U.S. SEC (Securities and Exchange Commission) stated it might delist Chinese companies if they fail to comply with the required regulations.
The companies identified by the SEC will have to hire U.S.-based auditors that will review their financials. Further, Chinese companies listed on U.S. exchanges will also have to disclose if they have any board of directors that are part of the CCP (Chinese Communist Party).
Despite these regulatory concerns, JD.com remains a top bet for growth and value investors. The company increased sales by 29.3% year over year in 2020. Further, its free cash flow soared by 79% in the last year as well. JD.com ended the December quarter with 472 million active customer accounts which is around 40% of China’s total population.
Wall Street expects JD.com to increase sales by 26.2% to $146 billion in 2021 and by 21.5% to $177.6 billion in 2022. This will allow the e-commerce giant to increase earnings by 9% in 2021 and by 45% in 2022. It shows us that the stock is trading at a forward price to sales multiple of 1.24x and a price to earnings ratio of 42x which is very reasonable considering its stellar estimated growth rates.
The growth in e-commerce is expected to drive sales higher for JD.com and peers higher over the upcoming decade. It has also allowed JD.com to increase its customer base by 30% year over year for two consecutive quarters. Analysts tracking JD.com stock have a 12-month average target price of $108.53 which is 43% higher than the current trading price.
Niu Technologies (NASDAQ: NIU)
Stocks in the electric vehicle space were on an absolute tear in 2020. The transition to clean energy solutions is inevitable which will drive top-line growth for several EV companies in the upcoming decade. While EV stocks have underperformed the market year-to-date it also provides investors with an opportunity to buy quality stocks at a lower multiple.
One such EV stock part of Cathie Wood’s portfolio is Niu Technologies. While NIU stock is up 250% in the last year, it is currently trading 36% below its record high.
The company designs, manufactures and sells smart electric scooters in China. It also provides scooter accessories including raincoats, gloves, knee pads, storage boxes, smartphone holders as well as performance upgrade components such as shock absorbers, brake calipers and carbon fiber body panels.
Niu sells and services its products through city partners, franchised stores, its online store and third-party e-commerce platforms. At the end of 2020, Niu operated through 246 city partners and 1,616 franchised stores in 199 Chinese cities. It also has 36 distributors in 46 international markets.
In 2020, Niu increased sales by 18% year over year to $374.6 million and reported adjusted profits of almost $32 million. Its total volumes in Q1 were up an impressive 273% at 150,000 driven by an expansion of its retail network in China and increased marketing spending. The company is also looking to sell its electric scooters in the U.S. and Europe.
Valued at a market cap of $2.4 billion, Niu is forecast to increase sales by 77.5% to $674.5 million in 2021 and by 46.4% to $988 million in 2022. Its earnings might double to $0.83 per share in 2021 and rise by another 60% to $1.32 in 2022.
It suggests the stock is trading at a forward price to sales multiple of 3.6x and a price to earnings multiple of 38x. Analysts also have a 12-month average target price of $42 for the stock which is 30% above its current trading price.
Pinduoduo (NASDAQ: PDD)
The final stock on the list that’s also part of Ark Invest ETFs is Pinduoduo. This company was founded in 2015 and has successfully built a mobile-only e-commerce marketplace that connects millions of buyers and sellers. The Pinduoduo platform provides an interactive shopping experience and has focused on the social shopping element.
Its robust business model has meant that Pinduoduo has expanded its buyer base at a rapid pace. Its gross merchandise volume or GMV which is basically the total number of products sold on the platform increased to $255.6 billion in 2020, up from $72.75 billion in 2018.
Further, the total number of orders placed on Pinduoduo rose from 11.1 billion to 38.3 billion in this period. It also ended 2020 with close to 8.6 million active merchants on its platform.
Pinduoduo stock is down 34% from record highs. Despite the recent pullback the stock has gained a staggering 600% since listing on the NYSE.
It remains a top buy for long-term investors as the company increased its revenue by 97% year over year in 2020. Comparatively, Pinduoduo’s GMV was up 66%, while its total buyer growth stood at 35%.
In Q4, Pinduoduo reported a positive cash flow from operations and analysts expect the company to turn profitable on a non-GAAP basis by the end of 2022. Wall Street also forecasts sales to rise by 79% year over year to $16.54 billion in 2021 and by 37% to $22.64 billion in 2022.
Analysts tracking the stock have a 12-month average target price of $177 which is 30% above its current trading price.