| Should You Buy the Dip in the Chinese For-Profit Education Companies? 
Louis Navellier | It’s been a tough time for Chinese stocks recently. The problem began in early July with DiDi Global Inc. (DIDI), the “Uber of China.” The company went public on June 30, and just a few days after its public debut, the Cyberspace Administration of China (CAC) ordered smartphone app stores to yank DIDI’s 25 ride-sharing apps from their stores and for the company to stop adding new customers following the CAC’s cybersecurity review that found “serious violations” in how DIDI gathered and used private data. Tencent Music Entertainment Group (TME) also found itself under China’s microscope, as the Chinese antitrust regulators ordered the company to hand over its exclusive rights to music labels. The State Administration of Market Regulation (SAMR) fined the company $77,150 for failing to regularly report updates on the buyouts of two of its streaming music services, Kugou and Kuwo. This week, the Chinese crackdown continued with Chinese for-profit education companies, including Youdao, Inc. (DAO), New Oriental Education & Technology (EDU), Gaotu Techedu Inc. (GOTU) and TAL Education (TAL). DAO and EDU took the biggest hits, plummeting about 33%, while GOTU fell 29% and TAL dropped 27%. Over the weekend, China’s Ministry of Education wrote, “Capitalized operations are strictly prohibited; listed companies may not invest in disciplined training institutions through stock market financing, and may not purchase the assets of discipline training institutions by issuing shares or paying cash.” In other words, the companies can no longer operate as for-profit or raise money through the stock market to grow their business. Those who invested in DAO, EDU, GOTU or TAL were taken to the cleaners on Monday. However, investors who followed my Portfolio Grader would’ve known to avoid these companies before their big selloffs. 
As you can see in the Report Card above, DAO, EDU and TAL hold a D-rating and GOTU holds an F-rating, making every stock a “Sell” right now. The fact of the matter is that, with the exception of DAO, the companies’ fundamentals are weak. Institutional pressure, measured by my Quantitative Grade, is non-existent, as evidenced by the ’ F-ratings. I should note that I have recommended EDU several times in my services over the years. Most recently, I recommended EDU to my Platinum Growth Club subscribers in October 2019. At the time, the stock earned a C-rating for its Fundamental Grade and an A-rating for its Quantitative Grade and Total Grade. I added the stock to my Platinum Growth Club Model Portfolio because the company had just posted double-digit earnings for its latest quarter. EDU then went on to report at least double-digit earnings growth in its first, second and third quarters in fiscal year 2020, as well as topped analysts’ earnings estimates. However, when EDU’s earnings results for the fourth quarter in fiscal year 2020 fell short of analysts’ expectations and the company provided conservative guidance for its first quarter of fiscal year 2021, I took that as my cue to exit. So, I recommended that my Platinum Growth Club subscribers sell the stock for an 18% gain (made in just nine months) in August 2020, which allowed us to avoid suffering significant losses down the road. Now, this doesn’t mean that I’m avoiding Chinese stocks completely right now. In fact, I own several in my Platinum Growth Club Model Portfolio. But the difference is that, unlike DAO, EDU, GOTU or TAL, these companies are well-positioned for further growth. Let’s use Daqo New Energy Corp. (DQ) as an example. I added DQ to my Platinum Growth Club Model Portfolio back in February 2021. The stock was caught up in the panicked selling in Chinese stocks several times this year, but I remain very bullish. DQ supplies the polysilicon used in solar panels, which is a booming worldwide business. In fact, DQ's second-quarter sales are forecasted to grow at a 204.8% annual pace and its second-quarter earnings are forecasted to soar at an amazing 8,366.7% annual pace. The analyst community has revised its consensus earnings estimate up 92.4% in the past two months. Typically, such positive analyst revisions precede future earnings surprises. So, I look for a strong earnings report to dropkick and drive the stock higher and get it back to firing on all cylinders again. At the end of the day, it’s all about the numbers. The numbers tell me when it’s time to buy. And when they’re no longer up to snuff, I know it’s time to cut and run. So, while I will be staying far away from the Chinese for-profit education companies, there are other Chinese stocks that are leaders in their respective industries and are great buys on weakness right now. For full details, click here. Sincerely, 
Louis Navellier
P.S. If you’re looking to shore up your portfolio with fundamentally superior stocks, look no further than my Platinum Growth Club. Earnings reports for my Model Portfolio stocks will be coming in fast and furious over the next few weeks. And I expect their solid results to dropkick the companies’ stocks and drive them higher. If you want to get in before the stocks take off and get the most bang for your buck, now is the time to join. My Platinum Growth Club service comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different stock services – Growth Investor, Breakthrough Stocks and Accelerated Profits – so you can rest assured that you’re always invested in the crème de la crème. So, if you want to make sure your portfolio is “locked and loaded” with fundamentally superior stocks for the long term, I encourage you to sign up for Platinum Growth Club today. The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: Daqo New Energy Corp. (DQ) | 
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