5 China Internet Stocks to Buy on the Dip

China internet stocks were once the hottest investment on Wall Street.
 
The narrative was pretty straightforward. China internet companies found themselves at the heart of one of the hottest trends in recent memory — the birth and expansion of China’s mass consumerism. China is urbanizing at an unprecedented rate. This huge urbanization creates tailwinds for Chinese companies, since China’s working population numbers 770 million, more than five times as big as America’s working population. Those tailwinds translate into more shopping, more internet usage, more social media usage, more digital advertising — essentially, more everything.
 
In that world, China internet stocks win big.
 
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But that narrative has hit a road-bump recently thanks to trade war talks and foreign exchange pressures. Consequently, China internet stocks have dropped in a big way over the past several weeks.
 
In plain English, recent weakness is a buying opportunity in a lot of these names. Trade war issues will inevitably fade due to how connected today’s global economy is. Once those issues fade, FX pressures will ease and everything will go back to normal.
China e-commerce giant Alibaba (NYSE:BABA) has morphed into the face of the booming China tech revolution. The company has essentially become the Amazon.com (NASDAQ:AMZN) of China. There is the super-charged digital retail business working in tandem with the rapidly growing cloud business. Big growth in these businesses has caused BABA stock to rise from $60 to $200 over the past two-plus years.
 
But the stock has been stung recently by a plethora of headwinds, none of which have staying power or will materially affect the company’s still-robust long-term growth narrative.
 
First up, there are the currency headwinds. Those don’t have staying power. As MKM Partners points out, such currency risks always create weakness in shares in the near-term, and never materialize into anything meaningful. As such, present currency headwinds should be viewed as a buying opportunity.
 
Second, there are also concerns about Alibaba’s profitability. Alibaba has long been a staple for both big revenue growth and healthy margin expansion. But the latter part of that narrative — the margin expansion part — has been lacking recently as big investments into New Retail and cloud have diluted the margin profile of the business.
 
This isn’t anything to freak out about. Alibaba is investing big for the future. Eventually, big investment businesses will turn into big growth, big margin businesses, and the overall profitability profile of BABA stock will improve dramatically.
 
Overall, then, the risks presently facing Alibaba stock are over-stated. With the stock now trading at under 30-times forward earnings against the backdrop of 60%-plus revenue growth, Alibaba is a must-buy China internet stock here and now.
 
If Alibaba is the Amazon of China, then Baidu (NASDAQ:BIDU) is the Alphabet  (NASDAQ:GOOG, NASDAQ:GOOGL) of China.
 
That is a favorable comparison. Baidu is the leading digital search platform in China. Alphabet is the leading digital search platform elsewhere. Alphabet’s leading digital search status has allowed it to run an digital advertising business that has consistently grown revenues at a 20%-plus rate. Thus, Baidu’s preset revenue growth rate (over 30%) shouldn’t slow by much into the foreseeable future.
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