Snap Up These 3 Chinese Stocks Before the Next Evergrande-Inspired

This week, China Evergrande Group (OTC:EGRN.F) became a household name for investors — and not in a good way. The Chinese real estate giant set off a market panic on Monday on talk that a potential default on its $300 billion in debt could send ripples through the global economy.

By mid-week, those fears subsided somewhat, but China Evergrande is still very much a company on the brink. Investors given a fresh reminder of the risk that comes with buying into Chinese stocks are understandably hesitant about jumping in headfirst after Monday’s scare.

China is going through a period of transition, and investors are right to be cautious. But there will almost certainly be a lot of winners who emerge from this uncertainty. Here’s why these three Fools are backing NIO (NYSE:NIO), JD.com (NASDAQ:JD), and Baidu (NASDAQ:BIDU) as long-term survivors as the plot twists continue out of China. 

Image source: Getty Images.

The “Tesla of China” is in a regulatory sweet spot

Lou Whiteman (NIO): Evergrande is the focus today, but it has been a rough year for Chinese stocks in general. First, there was the troubled IPO of Didi Global, which led to talk about which, if any, Chinese companies would be able to list abroad. More recently, there has been a crackdown on sectors, including video game companies and education providers.

What they and Evergrande all have in common is an ongoing, behind-the-scenes battle between the pro-business side of the Chinese Communist Party, a group that wants to see “China Inc.” spread globally, and the more restrictive, regulatory side of leadership. My bet is that the eventual compromise will involve picking winners, and Chinese companies that both have the potential to expand internationally but are not tech- or data-heavy and don’t impact how Chinese society develops will be the ones with the longest leash to grow.

Electric vehicle (EV) makers appear to be a natural champion for China, and Nio is a likely standout among them. Thanks to its charismatic entrepreneur CEO and lineup of luxury EVs, the company has long been referred to as “the Tesla of China,” and at long last, we are beginning to see signs the business is living up to that hype. 

Nio delivered 21,896 vehicles in the second quarter, more than double the total from Q2 2020.  Although the chip shortage impacting all automakers threatens to slow near-term expansion, Nio’s agreement with its manufacturing partner gives it the capacity to eventually produce up to 240,000 units annually.

Nio is not yet profitable, and trading at 12 times sales is not inexpensive. But the company has $7 billion in cash on its balance sheet to ride out whatever blips are on the horizon, and continue its expansion in China and into international markets starting with Norway this fall. And the company has established itself as more of a lifestyle brand than a car maker, offering Nio Clubhouses where customers can drop in to hang out and…