3 Elite Chinese Internet Stocks Pulling Back to Support

Leadership Potential

Over the past three months, China-based internet stocks have been among the strongest in the market. The KraneShares CSI China Internet ETF KWEB It is among the most watched China ETFs in the US. Before pulling back recently, the KWEB ETF more than doubled after reaching dramatic lows in late October 2022.

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Because of the sharp and relentless rally from the lows, investors who were distracted or skeptical about China-related names missed the move. However, after the recent retreat of these leaders, they may offer investors a second chance.

Not all Retreats are created equal

There are subtle attributes investors should be aware of when weighing risk to reward pullback potential, including:

1. Early withdrawals offer attractive risk for reward: Often, the initial retracement to the 50-day moving average in a trend offers investors the optimal buying zone. As a trend gets older and longer in the tooth, the number of times you can “go back to the cookie jar” decreases. Chip manufacturer Network Semiconductor LSCC is the best example. The stock recently retreated to its 50-day moving average for the first time and found support before rising again.

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Image source: Zacks Investment Research

2. Power and Distance Are Related: When it comes to the stock market, strength tends to gain strength. In other words, the stronger the initial downward price trend, the higher the probability that the trend will continue.

3. Surprises Happen in the Direction of the Trend: Stocks in uptrends more often stay in uptrends. For example, a stock showing a strong trend toward earnings is more likely to unwind after the results are released than to decline—all things being equal.

Chinese Internet Names Offer Second Chances to Buyers

Investors who missed out on huge moves in Chinese internet stocks over the past few months are getting a chance to pull back. Three of the strongest names are included Alibaba BABA, JD.com JD, and Vipshop VIPS. Each stock has more than doubled last year’s lows, has a Zack’s Strong Buy Rating, and is rising above its 50-day moving average for the first time in that trend.

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Image source: Zacks Investment Research

Bargain basement appraisals

The technical picture is not the only positive feature of these stocks. After the multi-year pullback of these stocks, valuations become more attractive. For example, from a P/E perspective, BABA shares are at their most attractive levels since inception.

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Image source: Zacks Investment Research

Pictured: BABA P/E ratio since inception.

Analysts were furious

Based on consensus estimates, analysts believe that earnings momentum is only starting from a growth perspective. For example, over the past 60 days, consensus analyst estimates for JD’s 2Q earnings have risen 25%.

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Image source: Zacks Investment Research

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Lattice Semiconductor Corporation (LSCC) : Free Stock Analysis Report

Vipshop Holdings Limited (VIPS) : Free Stock Analysis Report

JD.com, Inc. (JD): Free Stock Analysis Report

Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report

KraneShares CSI China Internet ETF (KWEB): ETF Research Reports

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.

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