Chinese Small-Caps: 3 Stocks to Watch in May

These stocks at the nexus of interesting trends are worth a closer look.
Anthony RussoApr 29,2021,14:04

Despite a volatile last month, it’s been a solid last week or so for small-cap stocks.

Since Apr. 20, the Russell 2000 Index, which is comprised of around 2,000 small-cap firms, has gained 5%. Year-to-date the index has rallied 17%.

Last month, I posted a report on three Chinese stocks U.S-listed stocks with interesting trends to keep an eye on for April. The only one I was skeptical about was 500.com, which just recently completed its name change to BIT Mining Ltd. (NYSE: BTCM), as it looks to move away from its failing online lottery business and continue expanding into bitcoin. The stock is down 21% since the report.

Meanwhile, I recommended buys on solar module maker JinkoSolar Holding (NYSE: JKS) and cross-border e-commerce company LightInTheBox (NYSE: LITB). LITB has risen 15%, whereas JKS has fallen 12% to date.

Of course, trade tensions between Washington and Beijing will continue to play a factor for the foreseeable future but there are still some intriguing potential plays. Below are three Chinese U.S.-listed small-cap stocks to keep a close eye on in May.

1. Ebang International Holdings Inc. (Nasdaq: EBON)

Market Capitalization: $823.25 Million

Ebang has found itself in the news a number of times in recent months-- but it hasn’t all been for the right reasons.

The Hangzhou-based bitcoin mining firm went public in June 2020, raising more than $100 million. At the end of 2020, Ebang announced plans to launch a cryptocurrency exchange for the first quarter. The news came before Tesla (Nasdaq: TSLA) chief executive officer Elon Musk drove up the price of bitcoin to record levels.

Also, Ebang announced in February that it would launch Dogecoin (DOGE-USD) and Litecoin (LTC-USD) mining businesses. Both cryptocurrencies have exploded this year as well.

However, Ebang was hit by a short-seller report from Hindenburg Research earlier this month that alleged the company of transferring the capital it received from U.S. fundraisings into a "series of opaque deals with insiders and questionable counterparties” and made up the trade metrics on its new crypto-exchange platform, Ebonex. Although Ebang denied the accusations, American investors have still been cautious. Every time an alleged short-seller report comes out on a Chinese company, one can’t help but think back to the Luckin Coffee (OTC: LKNCY) fiasco, which led to a delisting from Nasdaq.

But on the other hand, Ebang will be enticing buy at the dip--given all the euphoria in the cryptocurrency space this year. Currently, Ebang trades at $4.43 per American depositary share, lower than its IPO price of $5.23.

If you buy, put a stop loss limit at around $3.50 per share to limit the possible damage.

2. Lizhi Inc. (Nasdaq: LIZI)

Market Capitalization: $301.80 Million

Not all Chinese companies listed in the U.S. watch their stock fall on allegations of fraud--just ask audio entertainment platform Lizhi.

Since the middle of March, shares in Lizhi have lost more than half of their value, with Sino-U.S. trade tensions worsening and growth stocks slumping on fears of rising interest rates.

Meanwhile, the company has had some interesting developments when it comes to partnerships with automakers this year.

That includes expanding its partnership with premium electric vehicle maker XPeng (NYSE: XPEV) and collaborating with new energy vehicle company ENOVATE Motors, to integrate LIZHI’s in-car audio product. It also teamed up with automotive intelligence technology company ECARX. All three deals were announced in March.

That same month, Citron Research editor Andrew Left Citron Research went bullish on Lizhi. Left, known for his short position on GameStop (NYSE: GME), placed a $30 price target on the stock. He noted that Lizhi is a “cross-section of Clubhouse, Roblox and NOW dating.”

In addition, Lizhi announced last week that it will integrate its product into WM Motor's in-car system for electric vehicles.

When it comes to Lizhi (especially considering the deals it's made with major automakers this year) a buy on the pullback makes sense.

In 2020, Lizhi grew its revenues by 27% to $230.3 million, while averaging 56.2 million monthly mobile active users.

3. Aurora Mobile Ltd. (Nasdaq: JG)

Market Capitalization: $484.90 Million

Aurora Mobile has also been active with collaborations this year.

The Shanghai-based company, which provides mobile solutions, announced several partnerships this month including with cinema operator Wanda Film Holding Co. Ltd., ride-hailing platform Hangzhou Yivi Intelligent Technology Co., LTD., and NEV maker Hycan Intelligent Technology Co., Ltd.

In February, Aurora teamed up with iQiyi (Nasdaq: IQ) to jointly establish a smart advertising and marketing ecosystem. That same month, it partnered with short-video platform Kuaishou Technology (HKEX: 01024; OTC: KUASF) to improve advertising monetization efficiency.

Also, like Lizhi, the company has a partnership with WM Motor's and has made deals with several other major Chinese firms in regards to collaborations.

Meanwhile, Aurora’s stock has been on a pullback since it posted a weak fourth-quarter financial report. In the three months ending December, its revenues dropped 42% year-over-year to $16.24 million, while its net loss more than doubled to $13.78 million. For the full year 2020, revenues plummeted 48%.

While shares in Aurora have been down 33% since Mar. 18, they skyrocketed 20% at Wednesday close after Oppenheimer analyst Bo Pei initiated coverage. He placed an outperform rating on the stock with a $6 price target.

While this stock has intriguing long-term upside, don’t panic buy-- wait for another dip opportunity.

CapitalWatch Disclaimer

CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.

Topics:Tesla, Elon Musk, Bitcoin, GameStop, BIT Mining, JinkoSolar, LightInTheBox, Lizhi, XPeng, Ebang, WM Motor's, iQiyi, Wanda Film, Kuaishou Technology.
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