We believe some of the best international stocks in 2019 can be found in one place – China. That’s because not all Chinese companies rely on exports to the United States for revenue.

The escalating U.S.-China trade war is a two-edged sword. It will hurt Chinese manufacturers that sell goods to Americans but will help companies that do most of their business in China.

The Chinese economy is expected to grow by 6.2% in 2019, more than double the 2.5% growth rate predicted for the U.S.

For China to grow its economy at that pace, it will spend heavily in two sectors: technology and commodities. Therefore, the best international stocks in 2019 will be technology and commodity companies that are focused on China.

The Best International Stocks in 2019

If you’re in a hurry, below are the best international stocks in 2019:

1. iQIYI (NSDQ: IQ). A spinoff of Baidu (NSDQ: BIDU) that’s China’s leading online video streaming platform.
2. Alibaba (NYSE: BABA). E-commerce giant dwarfs the sales volume of Amazon (NSDQ: AMZN) and eBay (NSDQ: EBAY) combined.
3. BHP Group (NYSE: BHP). A mining giant that’s China’s closest supplier of the hard assets it needs to grow.

How Do You Determine What Qualifies for the Best International Stocks in 2019?

There are three critical traits that will determine which companies qualify as one of the best international stocks in 2019.

First, a company must derive the majority of its sales from China. That does not necessarily mean that the company must be headquartered in China, although that is most often the case.

Second, a company must be in either the technology or commodity sector. That includes oil and gas, along with industrial metals and other hard assets.

Third, a company must be an industry leader that can grow its market share. The middle-class population of China is growing rapidly, increasing by more than 30 million consumers per year over the past 15 years.

Below are three companies that we believe will among the best international stocks in 2019.

iQIYI

What is it?

Spun off from Internet search firm Baidu in 2017, iQIYI is China’s leading online video streaming platform. The company is positioned to grow thanks to favorable market dynamics. As measured by user time spent and average total monthly users in 2017, iQIYI is Number One.

In the West, iQIYI is often described as the “Netflix of China.” However, although both provide video content, their business models aren’t quite the same. Unlike Netflix (NSDQ: NFLX), iQIYI offers free content. Users who wish to have special privileges can pay for a “VIP” subscription.

As of August 2018, iQIYI had 66 million paid subscribers. This figure includes a company record net addition of 13.5 million subscribers during the second quarter. That is an indication of strong success in converting its free user base of more than 80 million to paid subscribers.

Why is it one of the best international stocks in 2019?

Among China’s 1.4 billion people, about 400 million are Millennials (approximately age 20-40). This group of consumers is highly affluent and spends the most money. The size of the group is larger than the entire U.S. population. They are also avid smartphone users and video consumers.

Research shows that 95% of online videos are viewed on a mobile device. Additionally, videos account for about 22% of Chinese mobile usage. This is up from 13% two years ago, a sign that Chinese consumers are watching less TV and opting for more on-demand content on their mobile devices or PC.

There are also about 1.5 billion mobile phone subscriptions in China, and the country surpassed 1 billion 4G subscribers this year. The more smartphones capable of fast video streaming there are in China, the larger the potential addressable market.

Alibaba Group Holding

What is it?

Alibaba’s three major online retailing platforms account for more than 75% of online shopping in China. They are: Taobao (consumer to consumer), Tmall (business to consumer), and Juhuasuan (group buying). They easily dwarf the sales volume of Amazon and eBay combined as explained by founder Jack Ma in this video:

The company’s various online marketplaces are interconnected. That compounds the network effect whereby the greater the number of users, the greater the value created for other users. Millions of Chinese consumers automatically turn to Taobao and Tmall as the first place to search for products and services. They are essentially Amazon and eBay on steroids and with more room to grow.

In 2016, Alibaba acquired a controlling stake in the e-commerce company Lazada. The latter focuses on Southeast Asia, where online shopping has even less penetration of retail sales, at 3% compared to 14% in China. We don’t expect Alibaba to challenge Amazon’s dominance in the U.S., and it’s still unclear whether it might become a major player in Europe. But the odds are high that Alibaba will become a major force in China’s backyard.

Why is it one of the best international stocks in 2019?

Alibaba has relatively little exposure to U.S.–China trade tensions. The Trump administration’s tariffs won’t hurt Alibaba much because exports to the U.S. do not constitute a big part of its revenue. If U.S. goods become too expensive, Chinese companies could switch to other suppliers, both domestic and international.

Overall, the U.S. accounts for less than 10% of China’s imports. A risk for the U.S. is that even after tariff issues are resolved, China could decide to stick with its alternative suppliers. Given the immense size and potential of the Chinese domestic market, many countries would be happy to take over from U.S. suppliers.

It seems unlikely that Trump’s tariffs will change Chinese consumption patterns enough to hurt Alibaba in any meaningful way. Alibaba is finding new ways to engage the Chinese consumer and is increasingly integrated in everyday Chinese life. Long-term investors with the patience to ride out current uncertainties should be handsomely rewarded.

BHP Group

What is it?

Our final China play is an Australian mining and energy company, BHP Group. Formerly known as BHP Billiton, the company underwent a massive restructuring over the past two years to narrow its product and geographic focus.

BHP now generates revenue through four operating divisions: Petroleum, Copper, Iron Ore, and Coal. Iron Ore and Copper account for roughly two-thirds of BHP’s revenue, while Petroleum and Coal comprise the remaining one-third.

Billiton sold off all of its energy assets in the U.S., along with a smattering of non-core mining properties. The company used net proceeds from those sales to pay down debt. As a result, its operating income has more than tripled over the past two years.

Why is it one of the best international stocks in 2019?

China has made clear its intention to move forward with its economic growth plan in 2019, with or without the assistance of the U.S. Australia is China’s closest supplier of the type and quantity of hard assets it needs to grow.

BHP’s share price was stuck in a trading range during the past year while oil and commodity prices declined. Now that it has sold its U.S. oil properties, BHP’s bottom-line profitability should improve in 2019.

In addition, the company will use $10.4 billion from the sale of its U.S. energy assets to buy back stock and pay a special dividend in 2019. That amounts to more than 8% of BHP’s market value and is in addition to its 5% regular dividend yield.

That’s our wrap-up of the best international stocks to buy in 2019. If you’re looking to make money regardless of geographical location, and regardless of the market’s ups and downs, then turn to my colleague Jim Fink.

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