Chinese Slowdown Overdone, Chinese Companies Oversold

Includes: BIDU, SINA, SOHU
by: Adam Alvarez

Once past the Iranian tension, the skyrocketing oil prices and the European debacle, investors have been doused with one other piece of news that has been presented in a rather doomsday-like manner. That news has revolved around the now widely publicized slowdown in growth in China.

Now it is true that Chinese growth recently has not been as spectacular or scintillating as it has been in the past. In January, China's growth domestic product, or GDP, came in at 8.9%. Although above analyst's expectations of 8.7%, that mark still came in below the 9.1% reported in the third quarter.

However, when placed in proper context, that growth rate in such an environment is actually rather superb. After all, China depends heavily on worldwide demand, especially from the European Union and the United States. With the EU in ultimate desperation to curb spending and the United States reporting a pitiful, at least in comparison with China, GDP reading of 2.8%, China's ability to expand in an environment where it is nearly the only economy in notable expansion is quite compelling. China's growth is especially glaring when one considers the only number that comes close to China's 8.9% GDP is the 8.3% unemployment rate in the United States.

The above statistics add extra question marks to the noticeable and underperforming nature of many mainstream Chinese stocks recently. After leading the initial market surge in January, a vast majority of U.S.-listed companies have seriously underperformed in the month of February.

Fueled by a miss in (NASDAQ:SOHU) earnings in early February, the downward trek in most Chinese names has generated risky, yet serious buying opportunities in a variety of names. These opportunities have become even more glaring by poor performances in the shares of other Chinese standouts Sina (NASDAQ:SINA) and Baidu (NASDAQ:BIDU) for the month.

Despite some disappointment in the overall numbers and guidance, the noticeable growth being established by these companies is undeniable. Sohu's revenue, for instance, increased an impressive 42% year-over-year while Sina's climbed 21%. Those numbers, though impressive, aren't to be outdone by Baidu's 83% surge in revenue reported earlier in the month.

Despite the impressive growth, below is a look at the performance of each of these stocks in the month of February.

Baidu -5%
Sohu -18%
Sina -10%

Even though these companies are showing signs of being oversold, stop loss orders on these shares are imperative due to their typical volatile trading patterns. Any near-term buy orders on Baidu should be accompanied by a stop loss order at $129, a stop loss at $55 on Sina would be appropriate and $46 on Sohu.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.