China: GDP Soars. Share Prices Drop to 52-Week Lows.

The United States is in the middle of one of the best recovery years it has seen in decades, with a predicted GDP growth this year of up to 7%. (Click to read that blog.) That GDP growth has saved us from a credit downgrade by Fitch Ratings, although the outlook does remain negative. If we get the Debt Ceiling raised in time (hopefully before August 1 and definitely before we run out of money), it’s very likely that the U.S. will keep its AAA rating from Fitch for the rest of 2021.
 
However, if you think the U.S. is having a gangbuster year, China is “off the charts,” to quote Sebastian Eckardt, the World Bank’s Lead Economist for China, in his podcast interview with Fitch Ratings on July 12, 2021. It’s rare when economists use language like that. They didn’t even bother mentioning the number, which was 18.3% GDP growth in the first quarter of 2021 for China.
 
Economic Growth
2Q 2021 economic growth for China should be reported next week. In a Reuters’ poll of economists, the median forecast was 8.1% GDP growth year-on-year. The full year should be around 8.6%, which would be the highest GDP in a decade for China.
 
Share Prices
Before we jump all in, it’s important to remember that this is a recovery year. Companies have taken on a lot of debt to stay alive during the pandemic. Some companies and industries are in the middle of a structural shift and are unlikely to have the revenue they need to recover without restructuring. As just one example, be sure to read my report on office buildings in San Francisco and NYC.
 
In many industries that are enjoying impressive revenue growth, such as technology and electric vehicles, the recovery is already priced into U.S. equities. If you look at the chart below, which came from the Federal Reserve Board, you can see that the forward PEs of the S&P 500 are as high now as they were in the Dot Com Recession. There was a wipe-out of up to 78% in the NASDAQ Composite Index between the high of March 2000 and the low of October 2002. It took 15 years to recover. So, it’s important to be mindful of price and valuation, even in an unprecedented year of GDP growth.

Valuations
Share prices on many Chinese companies have dropped dramatically. Alibaba is trading at $213/share. Last October, before Jack Ma went radio silent, Alibaba was trading at $319/share. Beijing scuttled Ma’s Ant Group IPO and fined Alibaba $2.8 billion in April. According to Alibaba’s co-founder and vice-chairman Joe Tsai (speaking on CNBC on June 15, 2021), the company is looking forward under the leadership of CEO Daniel Zhang. Jack Ma is now more focused on his charities and hobbies, and is no longer on the board of Alibaba.
 
Even with all of the scrutiny and fines, Alibaba hit a new milestone of one billion annual active global consumers, with year-over-year revenue growth of 64% in the 1st quarter of 2021. The company swallowed the fine and reported a net loss of $836 million in the quarter, due to that one-time event. Alibaba is forecasting $144 billion in revenue in the 2022 fiscal year, representing an increase of almost 30%. Alibaba’s forward PE is 21. With 64% year-over-year sales growth, a 19% net profit margin, continued robust growth predicted in 2022 and a gangbuster GDP year for China, that’s very reasonable (unless the pandemic surges with a vengeance).
 
By comparison, Amazon’s forward PE is 77. Amazon is boasting a respectable 44% year-over-year sales growth. However, the company’s price-earnings ratio is dramatically higher than Alibaba’s, with lower growth in the trailing earnings quarter.

An ESG Star of the Stock Report Card
Daqo Energy, which provides high purity polysilicon for the global solar PV industry, has a forward PE of just 9. Daqo Energy saw revenue growth of 52% in the first quarter. Since then, the average selling price of their product has gone from $11.90 per kilogram in the 1st quarter to $23-$25 per kilogram. In the 2nd quarter of 2020, during the pandemic, polysilicon prices dropped to just $7.5/kg.
 
Even with a silicon supply chain bottleneck, Daqo is managing to stay on track for their deliveries without much increase in costs. So having their ASP double, without a meaningful escalation of expenses, should make for a pretty stunning earnings report in mid-August.
 
Oddly, though investors rallied after the May earnings report, the price is lower today than it was when the report came out. Since hitting a high back in February of this year of $130 a share, Daqo has mostly been on a downtrend. The company is currently trading at $68 a share.
 
Bottom Line
As the author of Put Your Money Where Your Heart Is, I strongly believe in ESG investing. However, price is always something to factor in. That is why it is so exciting to find a solar company that is trading at half the price it was earlier this year, with an impressively low forward PE, right at the time that average selling price of their main product has doubled.
 

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​​

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