Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? Among the best are Nio (NIO), Baidu (BIDU), Li Auto (LI), Pinduoduo (PDD) and BYD Co. (BYDDF).

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China is the world’s most-populous nation and the second-largest economy, with a booming urban middle class and amazing entrepreneurial activity. Dozens of Chinese stocks are often among the top performers at any given time, across an array of sectors.

U.S.-China Audit Deal To End Delisting Risk?

U.S. and Chinese regulators signed an audit supervision deal on Aug 26, which should end the threat that the SEC would delist the likes of Alibaba, Nio and many more. A day earlier, The Wall Street Journal, citing sources, said the U.S. and China were close to a deal that would allow U.S. audits of U.S.-listed Chinese firms in Hong Kong. The accounting oversight fight has threatened the listings of the likes of Alibaba, Nio and many more.

U.S.-listed Chinese stocks soared on Aug. 25. They were mixed on Aug. 26.

Best Chinese Stocks Across Many Industries

As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:

In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world’s biggest auto market.

Several Chinese financial firms or brokerages are listed in the U.S.

• Futu Holdings (FUTU)
• Up Fintech Holding (TIGR)
• 360 DigiTech (QFIN)
• Noah Holdings (NOAH)

Several China stocks are in solar power.

• Daqo New Energy (DQ)
• JinkoSolar (JKS)

For-profit education Chinese stocks are a notable nontech sector.

• New Oriental Education (EDU)
• TAL Education (TAL)
• Gaotu Techedu (GOTU), formerly known as GSX Techedu.

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China Stock Investing Via ETFs

One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.

KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S. listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times-leveraged ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times-leveraged ETF shorting Hong Kong’s biggest companies.)

Stock Market Trend Key

As always, investors should be following the overall stock market trend. Right now the stock market is in a confirmed uptrend, but the major indexes have been pulling back.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.

Best China Stocks To Buy: Key Ingredients

Focus on the best stocks to buy and watch, not just any Chinese company.

IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.

Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.

Start with companies with strong earnings growth. If they’re not profitable, at least look for rapid revenue growth. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.

Chinese stocks outperformed in the spring, but have struggled lately.

Why This IBD Tool Simplifies The Search For Top Stocks

Best Chinese Stocks To Buy Or Watch

So let’s analyze these five top China stocks: Li Auto stock, Baidu stock, BYD stock, PDD stock and NIO stock.

Li Auto Stock

Li Auto is one of several Chinese electric-vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).

On Aug. 15, Li Auto reported a small Q2 loss in line with estimates. Revenue shot up 73% to $1.3 billion, below views for $1.4 billion. Li Auto had been profitable for the prior three quarters, but Covid shutdowns took their toll on production and deliveries in Q2.

The EV startup sees Q3 revenue at $1.34 billion to $1.43 billion, which was far below consensus.

Li Auto currently has just one model, the Li One hybrid SUV. The automaker delivered 10,422 Li One hybrid SUVs in July, up 21.3% vs. a year earlier but down 20% vs. June’s 13,024 units.

Deliveries of the more-upscale L9 hybrid SUV begin in late August, with Li Auto previously predicting 10,000 deliveries in September.

Li Auto expects to deliver 27,000-29,000 vehicles in Q3. That would be up 7.5%-15.5% vs. a year earlier, but also far below estimates. Li delivered 28,687 vehicles in a Covid-hit Q2.

The upcoming L9 is cannibalizing Li One sales, the company says. Also, the automaker plans to launch a third hybrid SUV, the L8, in Q4. The L8 will be a scaled-down L9, replacing the Li One.

Shares sold off hard in the spring. Li stock bounced following Q1 earnings on May 10 and reclaimed its 50-day line in late May. It recently gapped above its 200-day line and then kept running.

Shares ultimately more than doubled to a 52-week high of 41.49 on June 24. LI stock has since broken below its 50-day line but is trying to bounce from its 200-day line.

The automaker has a dual listing on the Hong Kong exchange.

Li Auto stock has a 66 IBD Composite Rating out of a best-possible 99.

Bottom line: Li Auto stock is not a buy.

Baidu Stock

Baidu is China’s top search giant. It also has big ambitions in the autonomous driving space. Earnings fell in 2021 and are expected to decline this year before rebounding in 2023.

Shares hit a two-year low in May, but bounced back before sliding from a short-term high in late June.

On Aug. 8, Baidu said it received approval from Wuhan and Chongqing to charge passengers for its ride-hailing service without a safety driver in designated areas.

Baidu blasted above its still-falling 50-day and 200-day moving averages on Aug. 25 on the U.S.-China audit deal.

That could be seen as an early entry to a bottoming base with a 156.87 buy point.

But Baidu reports earnings on Aug. 30.

Bottom line: Baidu stock is a buy, but earnings are coming up.

BYD Stock

BYD is the biggest Chinese EV maker. It makes EVs, plug-in hybrids as well as electric buses and heavy equipment. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.

Notably, BYD is profitable, though it was subdued in 2021 as capital spending surged to power the company’s ongoing expansion.

On Aug. 3, BYD reported record July sales of 162,350 electric vehicles and plug-in hybrids, up 222% vs. a year earlier and 21% from June’s 134,036.

BYD’s sales include 162,214 passenger vehicles. Of those, BYD sold 80,991 passenger EVs and 81,223 plug-in hybrids.

Q2 sales surged to 355,021 NEVs, booming 256% vs. Q2 2021 and 24% above Q1’s 286,329.  BYD roared past Tesla vehicles sales — by 100,000. Tesla still leads in all-electric vehicles, with BYD selling 180,296 passenger EVs in Q2.

BYD largely avoided production hiccups amid China’s Covid lockdowns, helped by its in-house battery and chip operations.

BYD has said it expects to report first-half net profit up 139%-207% vs. a year earlier in local currency terms. Excluding non-recurring gains and losses, profit should soar 578%-795%.

BYD should report first-half results in a few days.

The automaker has conservatively targeted at least 1.5 million in unit sales this year.

BYD officially launched the Seal sedan, a Model 3 rival that’s $10,000 cheaper, on July 29. The company said preorders topped 60,000. Deliveries will likely begin in late August.

BYD will enter Japan’s market with the Yuan Plus, Dolphin and Seal next year, with the Atto 3, Atto 2 and Atto 4 names. The Atto 3 is launching in several Asian markets this year, including New Zealand, Singapore and several more.

Atto 3 deliveries are set to begin in Australia in the next few days.

BYD signaled a significant European expansion, announcing on Aug. 1 that it will begin deliveries in Sweden and Germany in Q4, and possibly other European markets. Like Nio and Xpeng, BYD began selling some EVs in Norway, starting in late 2021.

The EV giant sold a record 4,026 NEVs overseas last month, a number that will spike in the coming months.

The China EV giant will unveil a high-end brand in the third quarter and roll out its first model in the fourth quarter. The brand will target the luxury market for 1 million ($145,520) yuan or more, starting with an off-road SUV.

BYD’s 90%-owned Danza unit has just launched a minivan in the affordable luxury space, with deliveries likely starting in September. A Danza SUV is expected to be unveiled soon. Mercedes-Benz owns 10% of Danza.

BYD has begun supplying Blade batteries to Tesla Berlin. The Tesla deal is a major validation for BYD as a battery supplier to third-party automakers.

Toyota (TM) will use BYD batteries and motors in an upcoming small EV for the Chinese market, the bZ3. BYD may be actively involved in Toyota’s wider EV push in the coming years.

Stocks hit a multimonth low on March 14 but rebounded powerfully. BYD stock broke out past a 39.81 buy point on June 27.

BYD stock dived 11% on July 12 on rumors that Warren Buffett’s Berkshire was selling some of its stake. There is no confirmation yet if that is true or not.

BYD stock rebounded July 14 after the EV maker’s preliminary first-half figures.

Shares have fallen from the 50-day line again. The stock is trying to bounce from its 200-day.

BYD is listed in Hong Kong and trades over the counter in the U.S. The BYDDF stock chart is prone to lots of little gaps up and down.

Cathie Wood’s Ark Invest has a small stake in BYD.

Bottom line: BYD stock is not a buy.

Tesla Vs. BYD: China Rival Seizing EV Crown

Pinduoduo Stock

Pinduoduo is the No. 3 e-commerce player in China, after Alibaba and JD.com.

Profits are growing again, with second-quarter results due before Monday’s open.

Pinduoduo plans to open up some U.S. e-commerce operations.

On Aug. 25, PDD stock jumped above its 50-day and 200-day lines, offering an early entry in a bottoming base with an official 68.81 buy point. Shares kept rising on Aug. 26. But, Pinduoduo earnings loom.

Bottom line: PDD stock is flashing a buy signal, but earnings are on tap.

Nio Stock

While not as large as the diversified, profitable BYD, Nio is the most established of the Chinese EV startups. Nio has four electric vehicles, the ES8, the ES6, the crossover EC6 and the luxury ET7 sedan but the lineup is going to expand.

Nio delivered 10,052 electric vehicles in July, a 27% jump vs. a year earlier but off 22% vs. June.

July sales included 7,579 SUVs and 2,473 sedans. Nio didn’t break down model-specific deliveries for the first time. But it suggested newer models were hurt by supply disruptions amid a Covid resurgence in that country.

Nio will begin deliveries another SUV, the ES7, on Aug. 28. The mid-level ET5 sedan will begin deliveries on Sept. 30.

Down the road, Nio has plans to introduce a cheaper sub-brand, and possibly and even-cheaper third brand.

Nio is embarking on a big capacity expansion, and has major international ambitions, including entering the U.S.

Nio is sending its first ET7 sedans to Europe, as it looks to expand the European markets it serves.

Shares peaked at 66.99 in January 2021, tumbling to a low of 30.73 on May 13. Shares rebounded through June, but then began sliding again, hitting 52-week lows in May.

Nio stock rebounded back toward its 200-day line, but slid with other China EV makers in July.

Shares have formed a short bottoming base with a 24.53 buy point, but all of it has formed below the sliding 200-day line. A breakout would involve clearing the 200-day.

Nio is trying to make its way back to the 50-day line. A decisive retaking of the 50-day line would mean crossing a downward-sloping trendline, offering an aggressive entry. Investors also could use 22.07 as an early entry.

Bottom line: Nio stock is not a buy.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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