NetEase Inc (NASDAQ:NTES): The Best Chinese Tech Stock to Buy for the Third Quarter?

Attiya Zainib

27 June 2024 at 9:36 am·4-min read

We recently published a list of the 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. Since NetEase Inc (NASDAQ:NTES) ranks 10th on the list, it deserves a deeper look.

Analysts at BofA Securities recently published a list of “best of breed” stocks for the third quarter of 2024, which they believe are the top choices for investors on the back of their high quality, liquidity, earnings growth and margin upside when compared with peers. BofA’s “best of breed” basket of stocks has reportedly outperformed the MSCI All Country World Index (NASDAQ:ACWI) by 584 basis points, and returned a whopping 470% since its inception in April 2010.

Bank of America analyst Michael Hartnett thinks these best of breed companies have strong balance sheets, cash flow and high EPS growth as well as competent management. Hartnett believes these companies generate the “best relative returns” in the long term and can protect investors against short-term volatility.

For this article we scanned BofA’s best of breed basket of stocks and picked 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Pixabay/Public Domain

NetEase Inc (NASDAQ:NTES)

Number of Hedge Fund Investors: 41

Chinese internet company NetEase Inc (NASDAQ:NTES) also made it to the list of the best of breed stocks to buy according to Bank of America. Last month the company reported strong Q1 results. Adjusted EPADS in the quarter totaled $1.84, surpassing estimates by $0.12. Revenue jumped 7.2% year over year to $3.7 billion, meeting estimates. While NetEase Inc (NASDAQ:NTES) gaming division still makes up most its net sales, analysts believe the Cloud music, Youdao (search business) and Innovative businesses segments could grow in the future. NetEase Inc (NASDAQ:NTES) has several new games planned for the coming months and years, including Once Human and Marvel Rivals, which are creating a lot of excitement.

While NetEase Inc (NASDAQ:NTES) continues to grow, its growth rate isn’t as high as many had expected. During the first quarter, the growth rate was modest mainly because of lack of any new game releases in the period. The gaming segment’s gross margins jumped 280bps from a year-ago quarter to 69.5%, driven by NetEase Inc (NASDAQ:NTES) expansion on new platforms. As of the end of the first quarter, NetEase Inc (NASDAQ:NTES) has about $6 billion in cash and just $60 million in long-term debt. It also has $12.4 billion worth of time deposits, which are considered cash items, maturing in less than 12 months.

Polen Emerging Markets Growth Strategy stated the following regarding NetEase, Inc. (NASDAQ:NTES) in its first quarter 2024 investor letter:

“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”

Overall, NetEase Inc (NASDAQ:NTES) ranks 10th on Insider Monkey’s list titled 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. While we acknowledge the potential of NetEase Inc (NASDAQ:NTES), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NetEase Inc (NASDAQ:NTES) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Disclosure: None. This article is originally published at Insider Monkey.

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NetEase Inc (NASDAQ:NTES): The Best Chinese Tech Stock to Buy for the Third Quarter?

NetEase Inc (NASDAQ:NTES)

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