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Move Over FANGs, China's BAT Stocks Go From Copycats To Fat Cats

Chinese internet companies may have started out as imitators of successful U.S. internet firms, but they've grown to be powerhouses in the sector.

[ibd-display-video id=2024918 width=50 float=left]While the U.S. has the FANG group of internet giants - Facebook ( FB ), Amazon.com ( AMZN ), Netflix ( NFLX ) and Google-parent Alphabet ( GOOGL ) - China has the BAT group - Baidu ( BIDU ), Alibaba (BABA) and Tencent (TCEHY).

The massive Internet-Content industry group, which has market capitalization placing it in the 10 largest among the 197 industries tracked by IBD , has climbed more than 21% this year through Wednesday. China-based companies are 17 of the 55 names and represent 19% of the group's total valuation on the U.S. market.

The smaller Retail-Internet group, which on the U.S. side is home to names such as Amazon and eBay (EBAY), has vaulted 31%. The group's China stocks, which make up eight of the industry's 31 names, represent 40% of its market capitalization.

BAT stocks might get the lion's share of investor attention when it comes to Chinese internet stocks, but smaller firms are making waves. They include Autohome (ATHM), which provides online information for car buyers in China, online media company Sina (SINA), social media platform provider YY (YY) and social networking firm Momo (MOMO).

The strong recent performance has driven all four of those China-based internet names onto the IBD 50 list of top-performing growth stocks . Autohome has an 85% year-to-date gain as it rose to a new high Wednesday. Sina, Momo and YY are all nearing buy points : Sina and Momo are both building the right side of their cup bases . YY is below two alternative buy points , at 60.94 and 62.62, in the sixth week of a flat base . The three stocks' average year-to-date gain was 59% on Wednesday.

Wrapped In The Bamboo Curtain

Some investors are concerned that Chinese internet stocks are in a bubble, but Goldman Sachs analyst Kinger Lau disagrees.

"Their stellar returns have been mainly fueled by strong earnings growth as opposed to P/E (price/earnings ratio) expansion," he said in a July 3 report. "Ultimately, the debate boils down to how strong and sustainable their earnings growth will be."

His analysis suggests that the Chinese internet sector, especially top names like Baidu, Alibaba and Tencent, can grow earnings per share at a compound annual rate in the mid-to-high teens for the next 10 years. Lau bases his assessment on the overall growth of the internet market in China.

That growth, and...


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