Our Top 5 Chinese Stock Picks for 2023

An eventful year for the Chinese stock market is slowly closing. Although many investors believed things could be headed in the right direction after a tough 2021, most stand bitterly disappointed. That said, value investors may well be undeterred by this year’s performance, looking for Chinese stock picks for 2023.

Chinese stocks are among the best performers in the world in terms of growth. This means 2023 has the potential to become a banner year for this group of stocks. Investors are rightly unhappy with the way things turned out in 2022, as the Chinese government’s aggressive zero-Covid strategy severely damaged its domestic and global market. However, there are now signs China is easing restrictions to spur economic growth. Despite a surge in confirmed cases, protests in China are finally having an effect.

Once the issues with Covid-19 subside, it will once again be business as usual for China. This makes it a great time to bank on a comeback in Chinese stocks next year. China is the country with the largest middle-class population in the world. And before the pandemic, the country was one of the few that was growing at a rapid pace. It’s not hard to see why. Thus, for those who want to take advantage of the situation, this is the perfect time to look at Chinese stock picks for 2023.

Indeed, I think Chinese stocks should be on the radar of any investor looking to make money in 2023. Here are a few Chinese stock picks for 2023 poised for big gains in the coming year.

Alibaba (BABA)

Alibaba (NYSE:BABA), China’s leading e-commerce company, saw $1.3 trillion worth of transactions in terms of gross merchandise volume (GMV) in 2022. However, despite this impressive performance, the stock finds itself in the doldrums. Alibaba shares seldom trade at such a deep discount. Accordingly, with the hope of an economic turnaround next year, this one is one of the best Chinese stock picks for 2023.

In its second quarter earnings results, the e-commerce giant reported revenue of $29.12 billion, a rise of 3% from the year-ago period, missing analysts’ estimates by $490 million. On a brighter note, the company’s adjusted net income of $4.8 billion was up 19% year-over-year and beat the consensus forecast by $0.17 per share. However, due to marking down the fair value of its investments, Alibaba reported a net loss of $2.9 billion (20.6 billion yuan), down from a net income of 5.4 billion yuan in the prior year.

The growth of the company’s gross and operating margin is shrinking, as its costs increased to 63% of its revenue. The cost of inventory and logistics also increased. As a result, sales and marketing expenses increased by two percentage points.

Luckily for investors, on November 16, the company announced another $15 billion approval for its share repurchase program, which will end in 2025. This is an addition to the company’s ongoing $25 billion share buyback program, which has already seen $18 billion of share repurchases as of Nov. 16.

Additionally, Alibaba’s cloud business is doing very well. The company hosts over 37% of China-based websites, helping mitigate more than 800 million attacks every day. Coupled with its strong e-commerce and fintech businesses, this adds to a bright outlook as consumer spending goes online.

On balance, Alibaba stock looks like an enticing value play for 2023.

Baidu (BIDU)

The Chinese markets are still in turmoil, and tech companies continue to feel the pace. One such stock that’s been hit hard of late has been that of Baidu (NASDAQ:BIDU), which has fallen by double digits this year. That said, there are reasons to be optimistic about the company’s future.

Baidu is often called the “Google of China.” Besides its strong position in the Chinese search market, Baidu is making significant investments in new areas like self-driving cars and artificial intelligence.

Baidu is looking to shake things up in three main business areas. They’ve been adding lots of business pages on their site. That way, businesses can handle all their marketing needs in the Baidu ecosystem, independent of how they find customers. In addition, Baidu’s mobile app has expanded into something that includes multipurpose “mini programs” like WeChat. With 1.24 billion users, the app is one of the biggest in the world. This means not only that is Baidu focusing on digital media, but the company is also adding new features which are adaptable to user needs. Lastly, it is expanding its cloud platform Baidu AI Cloud which drives the growth of “non-online marketing” revenue. This segment accounted for 9% of China’s market during Q2 in 2022, placing it fourth amongst competitors. However, it is growing rapidly, making it one of the most talked about segments of the company.

Bears believe that Baidu’s growth is flat-lining. However, much of the recent growth slowdown is attributable to the overall Covid-19 environment. As this situation improves next year due to the recent actions of the Chinese government, I expect to see BIDU stock make a comeback soon.

Trip.com Group (TCOM)

One of the world’s leading travel service providers, Trip.com Group (NASDAQ:TCOM), operates throughout China and internationally. The company offers a wide range of services, including the sale of airline tickets and hotel accommodations. In addition, Trip.com provides many other travel-related services, such as trip planning and destination information. The company’s website is available in Chinese and English, making it easy for travelers worldwide to use its services.

Trip.com was founded in 1999 and quickly conquered the Chinese travel space. However, it all came crashing down when the pandemic severely hit it. China’s tourism sector continues to suffer because of aggressive COVID restrictions. However, things are slowly returning to normal, as is the case in the U.S.

As the global travel industry also starts humming, Trip.com Group will start rising again. Hence, the company well-positioned for a rally heading into 2023. We can already see that happening with airline stocks, which are perking up after a couple of rough years. Only a handful of Chinese stocks are up this year, and TCOM stock is among the few.

TAL Education Group (TAL)

TAL Education Group (NYSE:TAL) is a leading education company in China. Founded in 2003, TAL provides quality academic tutoring services to students from kindergarten to K-12, offering both online and offline tutoring. TAL also operates its schools, which provide a comprehensive education program that includes regular academics, language courses, and extracurricular activities. In addition to its academic offerings, TAL provides test prep services for students taking the Chinese college entrance exam. Through its innovative and effective teaching methods, TAL is helping to shape the future of education in China.

During the pandemic, TAL Education Group did exceptionally well. Online tutoring experienced a huge spike as people shuttered in. That has helped the company grow at an explosive pace. From 2012 to 2022, revenues jumped to approximately $4.4 billion from only $177.52 million.

Despite the challenges posed by the pandemic, TAL Education Group has continued to perform well, thanks in part to its strong online presence. Wall Street is impressed, which is why it is one of the few Chinese stocks in the black this year. In addition, TAL Education Group continues to do well in certain categories, despite an overall decline in revenue. As a result, TAL Education Group is one of the best Chinese stock picks for 2023. The company’s strong online presence and impressive profit performance are likely to continue benefiting the company in the coming year.

Yum China Holdings (YUMC)

Yum China Holdings (NYSE:YUMC) is a publicly traded restaurant company based in China. It is one of the largest restaurant companies in China by sales. At the end of September, Yum operated 12,409 restaurants in more than 1,700 cities across China. Yum China’s portfolio of restaurant brands includes KFC, Pizza Hut, Taco Bell, and Little Sheep. Accordingly, Yum China holds significant promise for those looking to invest in the reopening theme.

Despite macro headwinds, Yum China Holdings reported an increase in total revenue of 5% and $206 million in operating profit, up 98% versus last year. Additionally, adjusted diluted earnings per share rose 123% to $0.49 from $0.22 in the prior year, all thanks to a resilient business model and improving conditions post-July and August.

Yum China took the opportunity to reward shareholders. The company repurchased roughly 0.27 million of its shares for $13 million at an average price of $48.05 per share. As of September 30, approximately $1.2 billion remained under this buyback program slated for future repurchases. At the same time, the board declared a dividend of $0.12 per share, giving YUMC stock a yield of 0.87%. Through the year to September 30, Yum China returned $565 million to shareholders through a mix of buybacks and dividends.

A certain portion of investors value stability when looking for Chinese stock picks for 2023. For such investors, Yum China Holdings looks very enticing. The brands the company has in its portfolio hold worldwide recognition. And with China looking to loosen its regulatory grip, the time is now to invest in this one.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.