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Estée Lauder, Apple and Others Could Rise With China Reopening Hopes

Companies like chip maker Nvidia are seeing

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Andre Malerba/Bloomberg

U.S. companies that derive significant sales from China have been rallying. A few could continue gaining.

News items in the past few weeks have pointed to China reopening its economy in the face of rising Covid-19 case counts. Lockdowns had initially pressured China-exposed stocks, but the recent good news has spurred a brief rally. There’s still ambiguity about how quickly China will indeed reopen. If the news gets better, those stocks could go higher. 

Starbucks
(ticker: SBUX) has seen about 9% of its sales come from China in the past 12 months, according to FactSet, higher than 7% for aggregate sales for
S&P 500
companies. The stock has gained about 18% in the past month, versus just over 5% for the index.
Mastercard
(MA), with about 16% of sales from China, has seen its stock gain 12%.
Advanced Micro Devices
(AMD) sees 24% of sales from China, and has seen its stock gain about 28% in the past month. 

And then there are the stocks that have more upside if the China picture gets better. 

Evercore strategists screened for stocks that see at least 15% of sales from China. Within that screen, Evercore notes there’s more upside to the stocks that have short interest that’s above the 25th percentile of their short-interest range since 2021. Higher short interest as a percentage of shares outstanding means that there’s a lot of money currently betting that the stock will go lower. Short sellers must buy back shares before they rise too much in order to make money. That means any good news on the China situation would force those short sellers to buy shares back, sending their prices higher. 

Estée Lauder
(EL) is one. For starters, the makeup and fragrance firm gets about 30% of revenue from China. The stock is up about 13% in the past month, but at $222, it’s still below its second half of 2022 peak of about $281. Short interest as a percent of shares is in the 98th percentile of its range since 2021, according to Evercore data.

Apple
(AAPL) gets about 18% of its sales from China, but the stock is up only 0.5% in the past month. At $150, the stocks is below its second-half high of $174. Short interest is in the 59th percentile of its recent range. 

Nike
(NKE) sees just over 15% of sales from China, and the stock is up 20% in the past month. Short interest is in its 98th percentile. 

Marvell Technology
(MRVL) sees 43% of sales from China, and the stock is up about 13% in the past month. Short interest is in its 84th percentile. 

Nvidia
(NVDA) sees more than a quarter of sales from China, and its stock is up 27% in the past month. Short interest is in its 82nd percentile. 

The China situation seems still seems fairly fluid. But these stocks could make for a nice quick trade if all goes well in the region. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

Credit: marketwatch.com

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