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Concerns over China’s economic challenges remain rife as the year 2024 reaches its final three months. In recent years, investing in Chinese stocks has proven extremely challenging for bullish investors. Government policies perceived as anti-growth, crackdown on several sectors, strict COVID-19 measures, weak GDP growth, high unemployment and a crisis in the real estate sector have contributed to a market lull.
The struggling real estate sector has posed the main challenge to China's economy. Evergrande, previously the top real estate company globally, fell apart during the crisis in the Chinese property market.
China ETFs Post Gains
Despite the prevalent downbeat sentiment, not everyone shares a gloomy outlook on China’s future. Ted Alexander, CIO of BML Funds, expressed optimism on CNBC’s “Street Signs Asia,” highlighting China’s potential for innovation, as quoted on CNBC. He believes that further economic downturns are unlikely.
Invesco Golden Dragon China ETF PGJ, KraneShares Hang Seng TECH Index ETF KTEC, Global X MSCI China Consumer Discretionary ETF CHIQ and iShares China Large-Cap ETF FXI have each gained more than 1% in the past month.
Wall Street's Contrasting Views on China Stocks
Some high-profile investors have maintained their confidence in China. Billionaire investors David Tepper and Michael Burry continue to hold significant positions in Chinese companies, per the CNBC article. Tepper, the founder of Appaloosa Management, still has Alibaba BABA as his top holding, despite slightly reducing his stake. Leveraged Alibaba ETF GraniteShares 2x Long BABA Daily ETF BABX has gained about 11% in the past month.
Tepper also boosted his investments in Zacks Rank #1 (Strong Buy) JD.com JD, KE Holdings and Chinese exchange-traded funds (ETFs), which now form a considerable portion of his portfolio. Similarly, Michael Burry, famous for his role in “The Big Short,” has made Alibaba his largest holding, along with investments in Baidu and JD.com. Direxion Daily FTSE China Bull 3X Shares YINN has added more than 1% in the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.
On the other hand, there is also a cautious approach. Goldman Sachs has recently exited its long-term position in copper, reducing its price forecast for 2025 due to declining Chinese demand. Bank of America has also cut its 2024 growth forecast for China to 4.8%.
China: Mixed Economic Data But Signs of Rebound
China’s economic data presents a complex picture. While manufacturing and housing data have shown declines, there are signs of improvement in other areas. The Caixin Manufacturing PMI rose to 50.4 in August, indicating modest factory activity growth. Retail sales rose 2.7% in July, marking the 18th successive month of expansion. Moreover, China’s tourism sector experienced a significant surge this summer.
Strong Corporate Earnings for Chinese Firms
Despite macroeconomic concerns, some market experts see reasons for optimism. Eric Lin, head of Greater China Research at UBS, noted that Chinese companies have delivered strong earnings this year, which has supported the stock market, per CNBC. His team predicts a 10% upside for MSCI China by the end of 2024.
Cheaper Stock Valuations for China ETFs
The ETFs like FXI and iShares MSCI China ETF MCHI trade at a P/E of 11.64X and 10.89X, respectively, much lower than the SPDR S&P 500 ETF Trust’s SPY P/E of 22.53X.
Zacks Investment Research
The retail sector is staging a solid comeback as inflationary pressures ease. The sector struggled for months, crippled by sky-high inflation and higher borrowing costs. The jump in August retail sales proves that the U.S. economy is on solid ground.
The retail sector is expected to get a further boost as the Fed gears up to announce its rate cut today, the first since March 2020. Given this scenario, investing in retail stocks would be a prudent choice.
We have narrowed our search to four retail stocks such as Boot Barn Holdings, Inc. BOOT, JD.com, Inc. JD, Chewy, Inc. CHWY and Abercrombie & Fitch ANF,with strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Retail Sales Jump in August
The Commerce Department said on Tuesday that retail sales rose 0.1% in August after rising the most in 18 months in July and beating analysts’ expectations of a decline of 0.2%. In July, retail sales rose 1.1%.
Year over year, retail sales grew 2.1% in August. Online retail sales made a solid rebound, increasing 1.4% in August after declining 0.4% in the previous month.
Sales at stores specializing in sporting goods, hobbies, musical instruments, and books rose by 0.3%. Sales at building material and garden equipment stores increased 0.1%. Miscellaneous retailers’ sales jumped 1.7%.
The latest data indicates that consumers are still spending at an aggressive pace as inflation continues to cool. Also, the average paychecks have risen substantially since the COVID-19 outbreak, which has been helping Americans spend despite the increase in prices of several necessities.
Fed Rate Cut to Boost Retail Stocks
Signs of cooling inflation have convinced the Federal Reserve to finally go ahead with its rate cut plans. The retail sale report came as the Federal Reserve began its two-day policy meeting. The financial community is hopeful that the Fed will go for its first rate cut in more than four years.
Also, the U.S. economy is on solid ground. The U.S. GDP grew 3% in the second quarter after growth slowed to 1.4% in the first quarter. The Atlanta Fed upwardly revised its third-quarter GDP growth estimate to an annual rate of 3% from the earlier projected 2.5% pace after the release of the retail sales data.
Presently, the CME FedWatch tool shows a 63% probability of a 25-basis point cut this week, while a 37% chance of a 50-basis point cut. Even if the Fed goes for a small rate cut, it bodes well for the broader economy. The retail sector is expected to get a boost as lower borrowing costs will allow consumers to spend freely.
Retail Stocks Set to Gain:
Boot Barn Holdings, Inc.
Boot Barn Holdings, Inc. operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. BOOT’s products include boots, denim, western shirts, cowboy hats, belts and belt buckles, and western-style jewelry and accessories. Boot Barn sells its products through bootbarn.com, an e-commerce Website.
Boot Barn Holdings’ expected earnings growth rate for the current year is 10.7%. The Zacks Consensus Estimate for current-year earnings has improved 11.4% over the past 60 days. Boot Barn Holdings currently sports a Zacks Rank #1.
JD.com, Inc.
JD.com, Inc. operates as an online direct sales company in China. JD, through its website www.jd.com, and mobile applications, offers a selection of authentic products.
JD.com’s expected earnings growth rate for the current year is 27.2%. The Zacks Consensus Estimate for current-year earnings has improved 16.8% over the past 60 days. JD currently carries a Zacks Rank #1.
Chewy, Inc.
Chewy, Inc. operates as an online pet retailer. CHWY offers pet products that include dry and wet food, toys, mats, biscuits, vitamins and supplements.
CHWY’s expected earnings growth rate for the current year is 65.2%. The Zacks Consensus Estimate for current-year earnings has improved 34.1% over the past 60 days. CHWY currently has a Zacks Rank #2.
Abercrombie & Fitch
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of approximately 850 stores across North America, Europe, Asia and the Middle East. ANF's product portfolio includes knit and woven shirts, graphic T-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids, under the Abercrombie & Fitch, Abercrombie kids and Hollister brands.
Abercrombie & Fitch’s expected earnings growth rate for the current year is 63.4%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. ANF currently sports a Zacks Rank #1.
Zacks Investment Research
China’s Yangtze Memory Technologies Co accomplished some breakthroughs in substituting ASML Holding NV and Lam Research Corporation chipmaking technology with domestic alternatives as U.S. sanctions take a toll on China’s artificial intelligence ambitions, Bloomberg cites TechInsights.
TechInsights analyst David Wei told Bloomberg in an interview that the memory maker leveraged gear from Advanced Micro-Fabrication Equipment Inc. China, Naura Technology Group and Piotech.
Geopolitical tensions have affected companies like YMTC and Huawei Technologies, as the U.S. restricted China’s access to advanced artificial intelligence chips and chipmaking machinery.
Though YMTC upgraded its “Xtacking” tech to help its NAND chip performance be at par with industry leaders Samsung Electronics Co , Bloomberg cited from a research note. Still, the absence of advanced technologies from companies such as ASML and NVIDIA Corp continued to bite chipmakers like YMTC in the form of a lower production yield.
Chinese hyperscalers such as Alibaba Group Holding Ltd – ADR voiced how the U.S. semiconductor embargo affected AI ambitions.
Meanwhile, the U.S. was in no mood to soften its stance against China as it collaborated with Japan to limit the export of chip technology to China.
Reports also indicated Nvidia AI chips were making their way into China via smuggling and other channels.
Photo: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
For Immediate Release
Chicago, IL – September 17, 2024 – Stocks in this week’s article are JD.com, Inc. JD, ZIM Integrated Shipping Services Ltd. ZIM, Pampa Energia S.A. PAM, Hamilton Insurance Group, Ltd. HG and Empire State Realty Trust, Inc. ESRT.
Tap These 5 Bargain Stocks with Impressive EV-to-EBITDA Ratios
Price-to-earnings (P/E), given its inherent simplicity, is the most commonly used metric in the value-investing world. It is preferred by many investors while handpicking stocks trading at a bargain. However, even this straightforward, broadly used valuation metric has a few downsides.
Although P/E enjoys great popularity among value investors, a less-used and more complicated metric called EV-to-EBITDA is sometimes viewed as a better alternative. EV-to-EBITDA gives the true picture of a company’s valuation and earnings potential. It has a more comprehensive approach to valuation.
JD.com, Inc., ZIM Integrated Shipping Services Ltd., Pampa Energia S.A., Hamilton Insurance Group, Ltd. and Empire State Realty Trust, Inc. are some stocks with attractive EV-to-EBITDA ratios.
Here’s Why EV-to-EBITDA Is a Better Option
Also referred to as enterprise multiple, EV-to-EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company’s market capitalization, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses like depreciation and amortization that dampen net earnings. It is also often used as a proxy for cash flows.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is undervalued. Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
P/E can’t be used to value a loss-making firm. A firm’s earnings are also subject to accounting estimates and management manipulation. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies that have negative net earnings but are positive on the EBITDA front. EV-to-EBITDA is also a useful tool in measuring the value of firms that are highly leveraged and have a high degree of depreciation. It can also be used to compare companies with different levels of debt.
But EV-to-EBITDA has its limitations, too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Thus, instead of just relying on EV-to-EBITDA, you can club it with the other major ratios, such as price-to-book (P/B), P/E and price-to-sales (P/S), to achieve the desired results.
Here are our five picks out of the 13 stocks that passed the screen:
JD.com operates as an online direct sales company in China. This Zacks Rank #1 stock has a Value Score of A.
JD.com has an expected earnings growth rate of 27.2% for 2024. The Zacks Consensus Estimate for JD's 2024 earnings has been revised 16.8% upward over the past 60 days.
ZIM Integrated Shipping is a leading global container liner shipping company. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZIM has an expected year-over-year earnings growth rate of 314.4% for 2024. The Zacks Consensus Estimate for ZIM’s 2024 earnings has been revised 592.4% upward over the last 60 days.
Pampa Energia is a leading independent energy-integrated company in Argentina. This Zacks Rank #2 stock has a Value Score of A.
Pampa Energia has an expected year-over-year earnings growth rate of 73.5% for 2024. PAM beat the Zacks Consensus Estimate in three of the last four quarters. In this time frame, it has delivered an earnings surprise of roughly 62%, on average.
Hamilton Insurance Group is a specialty insurance and reinsurance company that underwrites risks worldwide. This Zacks Rank #2 stock has a Value Score of A.
Hamilton Insurance Group has an expected earnings growth rate of 72.5% for 2024. The consensus estimate for HG's 2024 earnings has been revised 22.7% upward over the past 60 days.
Empire State Realty Trust is a leading real estate investment trust. This Zacks Rank #2 stock has a Value Score of B.
Empire State Realty Trust has an expected year-over-year earnings growth rate of 1.1% for 2024. The Zacks Consensus Estimate for ESRT’s 2024 earnings has been revised 1.1% upward over the past 60 days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2336292/tap-these-5-bargain-stocks-with-impressive-ev-to-ebitda-ratio
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Contact: Jim Giaquinto
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Zacks Investment Research
Until recently, the Japanese electronics and entertainment giant Sony Group had taken a different approach to streaming. It acted as an “arms dealer,” supplying its film and television rights to streaming companies like Netflix .
But now, Sony is making a multibillion-dollar push into producing more original content for its own use. This is part of a “creation shift” the company hopes will win it a greater share of the $3 trillion global entertainment industry. The company has spent $10 billion over the past six years to build a vast portfolio of games, films, and music - the three main business segments that account for 60% of its annual revenue.
This transition puts Sony right in the middle of a spending war for global content that is set to reach nearly $250 billion this year, according to the market research firm Ampere Analysis.
Sony's Move Into Media
This new focus and strategy seems to be a natural part of Sony’s evolution into a fully-integrated media company.
Already, Sony has leveraged its wide variety of media businesses to profit from the intellectual property (IP) it has acquired in its buying spree. This led to hits in recent years, including The Last of Us, which was converted from a PlayStation game into a hugely popular television series. The series is set 20 years into a pandemic caused by a mass fungal infection, which causes its hosts to transform into zombie-like creatures, which causes the collapse of society.
I suspect another game that will be converted to a movie or TV series soon is the highly successful Black Myth: Wukong. This action role-playing game is rooted in Chinese mythology. The blockbuster game is based on Journey to the West, one of the four great classical novels of Chinese literature.
And it's changing sales expectations for the PlayStation 5. Sales of the game had hit 10 million copies within three days of its release, making it one of the fastest-selling games in history. That translated to a surge in PS5 sales in China. PS5 transaction volumes more than doubled on Alibaba’s shopping platform during the week before the game’s launch.
How Sony is Set to Profit from Anime
In addition to video games, I believe another area where Sony can find a profits gold mine is in its vast trove of anime cartoons. This has been a red-hot entertainment growth segment, and Sony is one of the biggest beneficiaries of the growing global audience outside of Japan for anime series.
The company has one of the world’s largest portfolios of Japanese anime cartoons, which was greatly bolstered by its $1.2 billion purchase of AT&T’s anime streaming service, Crunchyroll, in 2021.
Crunchyroll has 15 million paid subscribers, and is releasing close to 200 titles a year, double what it was four years ago. It is one of the biggest anime platforms, with more than 130 million registered users across more than 200 countries around the world. The U.S., Brazil, and Germany are among its biggest markets. Another arm of Sony Group, Aniplex, is a leader in anime video and music production, and has also been growing outside of Japan.
Even though Sony is a huge company, anime is already showing up in the bottom line. In its latest quarter, Sony’s music business segment accounted for the biggest chunk of the company’s profit, thanks to its catalog of best-selling artists - a big part of the reason for music earnings growth. Sony Music is the world’s second-largest music company.
However, its anime business, which also falls under the music division, is another major profit growth driver. Sony revised up its sales forecast for both its music and gaming businesses by 3%.
And there is a lot more growth ahead for anime. Crunchyroll president, Rahul Purini, told the Financial Times: “Some of our research shows that there are over 800 million anime fans globally, and there are going to be a billion over the next few years.” So its current 15 million subscriber base has a lot of room to grow.
Sony also wants to use its know-how from its PlayStation Network service, including payments, security and data analysis, to improve engagement with Crunchyroll subscribers, which should expand growth opportunities. This makes sense; about 30% of PlayStation Network service customers watch anime, but only about 5% have Crunchyroll accounts.
Buy Sony Stock
Overall, Sony’s earnings outlook looks good over the next several years, supported by the expansion in IP sales in gaming, pictures, music, and anime. There’s also a potential boost from its semiconductor business on image sensor restocking by phone original equipment manufacturers (OEMs).
I also expect faster margin expansion from Sony’s monetization of its entertainment IPs and gaming platform. The planned partial spinoff and listing of its financial group in October 2025 will reduce Sony’s stake to less than 20%, and will also help to reduce overall earnings volatility.
Add it all up, and SONY is a buy below $95.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.
Alibaba Group Holding Ltd stock was down Monday as China’s lackluster economic data led to a sell-off, SCMP reports.
The economy also bears the brunt of the U.S. advanced semiconductor sanctions by restricting its access to sophisticated artificial intelligence chips from Nvidia Corp and peers.
Hyperscalers like Alibaba and Baidu, Inc need the chips to accomplish their AI ambitions. AI can prove to be a crucial benefactor for its e-commerce, logistics and cloud businesses, something that Amazon.Com Inc accomplished.
Also Read: Alibaba And Tencent Lap Up Meta’s AI Large Language Model
Last week, the Biden administration announced tariff hikes on Chinese imports, including Chinese electric vehicles, solar cells, steel, aluminum, EV batteries, and critical minerals, effective September 27.
Economic data showed that Chinese industrial production, retail sales, and fixed-asset investment were disappointing in August. Home prices reported a record low in nine years.
Barclays flagged to SCMP the urgency of stepping up policy easing and boosting domestic demand.
The People’s Bank of China (PBOC) told SCMP it could slash banks’ reserve requirement ratio (RRR) by 50 bps, followed by another half-point cut in the first half of next year.
Alibaba stock is down close to 3% in the last 12 months.
Alibaba Stock Forecast For 2030
Predicting the future in stock prices over long periods of time is challenging. Wall Street analysts use complex models that take into account interest rates, economic growth, competitive advantages, management teams and historical profitability, among a host of other factors.
If, as an investor, you want to assume most of the major factors remain stable, you can use trend analysis as a helpful tool. Using a longer term trend line or historical performance of the stock, you can aim to forecast a stock's annual rate of return.
For Alibaba, over the past 5 years, it's annualized stock performance is -13.4%, and if you assume that trend continues for another 5 years, you can expect a stock to trade at $40.81.
Using a trend line (see how to perform this function here), If you choose to use a trend line, connect your two points and look into the future to the point in time in which you're curious. Once you've identified that stock price, you may want to consider what type of conditions would need to exist for the stock to justify the share price – be it an outside influence or managerial decision making.
Price Action: BABA stock is down 1.04% at $83.81 at the last check on Monday.
Also Read:
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