New economic data released by China on Wednesday shows the world’s second-largest economy is still struggling to recover from the pandemic. Until the government gets serious about announcing consumption-driven stimulus, it’s even worse for U.S. companies that generate a lot of sales in China, including three in their portfolio: Starbucks, Estee Lauder, and Wynn Resorts. It could be news. According to the National Bureau of Statistics of China, China’s GDP increased by 5.2% in the past three months of 2023. It fell short of the 5.3% growth rate predicted by a Reuters poll. The full-year GDP growth rate was 5.2%, meeting the expectations of the Chinese government. Retail sales also rose 7.4% in the fourth quarter, below the Reuters poll’s target of 8%. The economic situation is not expected to brighten anytime soon. According to Reuters, GDP growth is expected to slow to 4.6% in 2024. Meanwhile, the youth unemployment rate remains high, at 14.9% for people aged 16 to 24, excluding university students. China’s central bank is looking to stimulate economic activity by cutting its lending benchmark loan prime rate several times in 2023. But the latest disappointing economic data has put pressure on policymakers to take action again to boost the economy. Things may have to get worse first before they get better. What does this mean for our three stocks that are closely tied to China’s economic recovery? Not surprisingly, Starbucks, Estée Lauder, and Wynn Resorts each saw their stock price rise by 1 on Wednesday. %, 2.6%, and 3.5%. However, we are not day traders. Although the 2023 recovery from COVID-19 restrictions did not go as expected, the decline in stock prices already reflects China’s headwinds, and we think the Chinese economy will regain its footing in time. . We also focus on the fundamentals of the stocks we own and ask ourselves: “What else has changed so much that we’re taking less bait here?” It’s hard to own a Starbucks right now. The coffee giant faces arrows from all sides: a weakening Chinese consumer and more competition in China, protests in the United States accusing Starbucks of taking sides in the Middle East conflict, and ongoing battles with labor unions. is recieving. We acknowledge that these headwinds could make it difficult for Starbucks to achieve quarterly results. About 8% of total revenue comes from mainland China, according to FactSet data. This number is expected to increase further. Starbucks operates more than 6,200 stores in the country and is on track to reach its goal of opening 9,000 stores by 2025. Concerns about China are likely to continue, as Morgan Stanley recently noted in a note to clients. It is now “fully priced in” to stock prices, he said, adding that stimulus could be an “upside surprise”. We agree with this assessment regarding SBUX’s evaluation. For luxury cosmetics maker Estée Lauder, a lot has changed, and not for the better. The company, which has posted three consecutive quarters of dismal results, remains a troublemaker, undoubtedly weighed down by the slump in travel retail in China, which accounts for about a third of the company’s sales. But what’s even more discouraging is that management doesn’t realize how bad the company is doing, as evidenced by the repeated cuts to its full-year outlook. If the company can hit those numbers and maintain guidance for next quarter (an easy task for many companies), the stock could finally start to stabilize. The trend of Wynn Resorts stock remains puzzling to us. While the stock is likely to be pushed down by other China-centric stocks, Macau gaming has made significant progress in recovering to 2019 levels. The casino operator cannot be sold because the stock price will rise once it becomes clear that China’s economy has stabilized. It is also trading at a forward P/E ratio of XX, which is well below its pre-pandemic P/E ratio of XX. This is also his third smallest position within our portfolio. Bright signs are beginning to appear. Recent strong gambling revenues in Macau, the Chinese territory where Wynn has luxury resorts, are approaching 2019 levels. Meanwhile, Wynn’s Las Vegas real estate continues to outperform, as shown in the company’s Q3 results, which is another reason we like the stock. (Jim Cramer’s Charitable Trust is long SBUX, EL, and WYNN. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, Jim makes trades. Receive trade alerts before. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. 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Meishan, China – January 15: Textile workers work at the workshop of Sichuan Renshou Jinhui Textile Co., Ltd. in Meishan, Sichuan, China, on January 15, 2024. (Photo provided by Pan Jianyong/VCG, Getty Images)
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New economic data released by China on Wednesday shows the world’s second-largest economy is still struggling to recover from the pandemic. Until the government gets serious about announcing consumption-driven economic stimulus, this could spell more bad news for U.S. companies with significant sales in China, including the three companies in our portfolio: . Starbucks, estee lauder and Wynn Resorts.