China’s BATs — Baidu Inc. (BIDU), Alibaba Group Holding Ltd. (BABA), and Tencent Holdings Ltd. (TCEHY) — are set to fly 15-20% higher after giant pullbacks this year. After climbing 63%, 96%, and 345%, respectively, over the past five years, analyst Ray Wang at Constellation Research thinks the declines of these tech giants will be short lived and that this represents a unique buying opportunity as investors look for safe places to put their money. "I still think that there's a lot of money out there that has not gone into the market," Wang told CNBC.

"There's no safe place to go, and what people are starting to think of is that they are treating these stocks as the safe stocks," Wang said. If you buy these three giant tech stocks, "you can't go wrong …they keep riding that market pretty hard," he added.

Stock  5-Year Performance  Pullback from 2018 High
 Baidu  + 63.1%  - 23%
 Alibaba  + 95.9%  - 18%
 Tencent  + 344.5%  - 31%

As of 10:00 AM EDT Aug. 16, 2018

China’s Great Firewall

Baidu, Alibaba, and Tencent are virtually protected from foreign competition within China due to China’s great Internet firewall, which restricts access to behemoth internet players like Google, Facebook and YouTube. That firewall allows China’s domestic companies to benefit from domestic growth in “internet adoption, mobile adoption, and payment adoption” without having to compete with outsiders, according to Wang.

Evidently, such policies tend to irk American policymakers looking to enhance the competitiveness of their own industries. Trump’s trade war and concomitant tariffs are no doubt attempts to level the playing field and are seen as partly responsible for the pullback in China’s technology sector this year. But Wang sees the primarily domestic nature of China’s tech conglomerates rendering any trade war escalations innocuous. (To read more, see: Fund Managers Say Trade Biggest Risk: BofA.)

On top of that resiliency, China’s tech giants are set to pay higher dividends in the future, and hedge fund giant Bridgewater Associates recently added $15.7 million worth of Alibaba shares and $7 million worth of Baidu shares to its holdings.

The Tencent Bargain

Tencent has fallen the most this year out of the BATs, partly due to its most recent earnings report. China's second-most valuable company reported a 2 percent drop in profits. But with powerful assets like messaging service WeChat, the company currently represents a strong buying opportunity that should outperform long-term.

Baidu Ready to Compete Globally

China’s Internet firewall may be soon put to the test as Google is preparing to re-enter the Chinese market that it left eight years ago with a censored version of its search engine. Baidu CEO Robin Li doesn’t seem worried, however, as he recently posted on a private social media account that if Google returns, “Baidu will win again.” He also noted that “Chinese companies today have plenty of ability and confidence” to compete at a global level, suggesting that China’s protectionist policies have been a success and that the company may be looking to expand internationally. (To read more, see: Baidu Says It’s Ready to Take on Google in China.)

Alibaba vs. Amazon

Alibaba is already moving in the direction of global competition and is preparing to go head-to-head with its U.S. counterpart—Amazon.com. Like Amazon’s partnership with Whole Foods, Alibaba is going to be joining forces with U.S. grocer Kroger Co. The initial step will be to set up an online store as a pilot test. For Alibaba, the goal is to uproot traditional grocery and department stores as well as to position themselves to better track inventory and customer data. This strategy is reminiscent of Amazon's, and with Alibaba’s huge reach within China, it may be the best long-term play out of all three BATs.

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