Portfolio manager explains why he has the ‘most conviction’ in this China tech stock

Published Sun, Nov 26 20237:34 PM ESTUpdated Mon, Nov 27 20236:06 AM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

Chinese tech players like Baidu , Alibaba and Tencent have largely been viewed favorably by investors, even as the Asian powerhouse has been experiencing slower growth. One tech giant, however, stands out to portfolio manager Brian Arcese: e-commerce player JD.com . The company is in the business of selling electronic products, operating logistics businesses and offers marketing services as well as an online retail marketplace. JD.com "is on a 10% free cash flow yield [and is] continuing to grow earnings," Arcese, a portfolio manager at Foord Asset Management, told CNBC Pro Talks on Nov. 21. "If you take cash out, let alone investments, then you're sort of sitting at a 15% to 20% free cash flow to five times for a business that is dominant in its niche and does continue to grow," he added in front of a live audience at business school INSEAD's campus in Singapore. Around 10% of Foord Asset Management's multi-asset portfolio is currently invested in China. Additionally, some 25% of its global equity portfolio is invested in China for 2024, which Arcese notes is "massive relative to the benchmark" — which only has a 2.5% exposure to China. "We do think that China is a market where you're really being properly paid to take more risks. And ...the U.S. is quite expensive," he said. Arcese - who manages the Foord International Fund - said that though the firm also owns Alibaba, Baidu and Tencent, he has "the most conviction" in JD.com. Year-to-date, shares JD.com are down some 50% in both the Hong Kong exchange and the Nasdaq. JD 9618-HK YTD mountain Year-to-date share price movement of JD.com Of 23 analysts covering JD.com, 20 give it a buy or overweight rating, with an average price target of $166.90 Hong Kong dollars ($21.41), according to FactSet. That gives the stock a potential upside of about 51% from its Nov. 24 close. Meanwhile, 47 analysts have coverage of the JD.com Nasdaq-listed stock, according to FactSet. Of these, 37 have a buy or overweight rating on the stock at an average price target of $43.70 — giving it an upside potential of 51.9%.