In this segment from the Motley Fool Money podcast, host Chris Hill is joined by Jason Moser of Million Dollar Portfolio, David Kretzmann of Hidden Gems Canada, and Aaron Bush of Motley Fool Rule Breakers to address a listener's question: What's the best Chinese stock for long-term investors? The team likes Baidu (NASDAQ: BIDU), commonly referred to as "the Google of China," as well as Tencent (NASDAQOTH: TCEHY), the company behind the extremely popular messaging and social media app WeChat.
A full transcript follows the video.
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This video was recorded on April 6, 2018.
Chris Hill: From Connor Noland, who asks, "If you had to choose one Chinese stock, which do you believe brings about the highest chance of return in the long term? About two months ago, I would have said Tencent, but given their performance recently, I'm not so sure." I don't know, David. Tencent really hasn't been knocked down all that much over the last couple of months.
David Kretzmann: No. Over the past year, it's been a really strong performer, outperforming just about any market average you can find. But I'm actually going to go with Baidu right now. This is the online search giant, we'll refer to it as the Google of China. Recently, their video streaming platform, iQiyi, went public, and Baidu still owns 80% of that platform. They're also the leader in autonomous vehicle mapping and data in China. They have their hands in a lot of lucrative areas, potentially, and they're only trading for 6X sales compared to 15X sales for Tencent and 13X sales for Alibaba. So, I think Baidu might be underestimated from here.
Aaron Bush: I'm actually going to push back on Tencent a little bit. I think there's actually still quite a bit to like there. For one, they're the largest video game publisher in the world, and that's an industry that's still growing quickly, it's very profitable. Being in China, they're sort of a gatekeeper for outsiders, so that's huge. They pretty much have a monopoly with WeChat, and that's huge.
But, even if you look at that, they're still hugely profitable, and if you look at the reason why the stock has recently fallen after earnings, it was because they decided to postpone some earnings and invest heavily in some product lines that are working really well, such as cloud computing and payments and content. So, I actually think Tencent could be a strong long-term performer.
Jason Moser: I would say, given everything I've learned about Tencent from Aaron, from my colleague Paul Chi, I would actually look at Tencent with this drop as an opportunity. I'd agree with that.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Alphabet (C shares), Baidu, and Tencent Holdings. Chris Hill has no position in any of the stocks mentioned. David Kretzmann owns shares of Alphabet (C shares) and Baidu. Jason Moser has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Baidu, and Tencent Holdings. The Motley Fool has a disclosure policy.