In this article, we will be taking a look at the 10 best ADR stocks to buy now. To skip our detailed analysis of these stocks and investing in foreign companies, you can go directly to see the 5 Best ADR Stocks To Buy Now.
With the U.S. economy currently steeped in high inflation and growing interest rates, and U.S. companies struggling to maintain their position in the stock market, many investors are beginning to eye foreign companies as viable investment options. While there are several ways to acquire stakes in companies listed outside the U.S., the concept of the American Depository Receipt (ADR) is one of the more accepted and popular ones among investors today.
What is the American Depository Receipt?
The American Depository Receipt, or ADR, is a receipt issued by an American depository bank to represent a number of shares of a foreign company one wishes to invest in. The concept of the ADR was first introduced by J.P. Morgan about a century ago. Now, it is one of the best ways for investors to acquire stakes in non-U.S. companies by allowing them to trade on American stock exchanges such as the Nasdaq and New York Stock Exchange.
While U.S.-based companies, especially blue chips like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG), have managed to retain their positive performance even in times of economic turmoil, many investors have been looking to diversify their portfolios with investments in foreign companies. According to the Wall Street Journal, businesses invested about $1.7 trillion outside their home countries last year. That represented a 77% increase from the $929 billion figure invested in 2020. Much of this investment flew into American companies, yet Chinese companies also managed to secure large investments from foreign investors. In 2021, investment inflows in Chinese companies also rose to $179 billion, representing a 20% increase from the year before.
As 2022 has advanced, international investing has begun to stage a comeback. As of this February, about half of the $55 billion in exchange-traded fund inflows went to funds focusing on foreign companies, according to CNBC. The better positioning of various international markets with higher allocations to cyclicals is one of the main factors leading to these inflows, according to Mike Akins at ETF Action. Even long-time investors and self-made billionaires such as Warren Buffett have been eyeing international stocks recently, with Buffett going so far as to buy several Japanese trading companies a few years ago.
The positive performance of ADR stocks listed in the U.S. may be another factor explaining this rising popularity. Bloomberg has noted that Chinese stocks listed in the U.S. had their best performance since 2019 in June, with the Nasdaq Golden Dragon China Index gaining 2.6% in May, which was followed up by 16% gains in June. This was the index’s first two-month win streak since 2021. In comparison, the benchmark S&P 500 index underperformed by falling 8.4% in June. The Golden Dragon Index also outperformed the Nasdaq 100 index, the latter falling by another 9% in June. As such, many hedge funds and individual investors are beginning to take ADR stocks more seriously. Let’s now look at the 10 best ADR stocks to buy now.
Our Methodology
We have selected stocks of foreign companies with recent positive earnings results, optimistic EPS growth prospects, and positive analyst ratings. These stocks also have price targets that generally signify untapped upside potential. They are also popular among the 895 hedge funds tracked by Insider Monkey which filed 13Fs for the second quarter. These stocks are ranked on the basis of the number of hedge funds holding stakes in them, from the lowest to the highest.
Best ADR Stocks To Buy Now
10. Futu Holdings Limited (NASDAQ:FUTU)
Number of Hedge Fund Holders: 9
Futu Holdings Limited (NASDAQ:FUTU) is an investment banking and brokerage company operating an online brokerage and wealth management platform in Hong Kong and internationally. The company offers trading, clearing, and settlement services, among others. It also provides online wealth management services under the Futu Money Plus brand.
On August 14, a ‘Buy’ rating was reiterated on Futu Holdings Limited (NASDAQ:FUTU) shares by BofA analyst Emma Xu, who has a $51.50 price target on the stock. Xu previously noted in June that Futu Holdings Limited (NASDAQ:FUTU) would be able to boost its full-year pre-tax net profit by between $20.4 million and $25.5 million, after the completion of its U.S. self-clearing.
Nine hedge funds out of 895 held stakes in Futu Holdings Limited (NASDAQ:FUTU) in the second quarter. Their total stake value was $153 million. Citadel Investment Group was the largest stakeholder in the company, holding 1.6 million shares worth $83.4 million.
Futu Holdings Limited (NASDAQ:FUTU), like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG) is a stock option many hedge funds are eyeing.
9. Infosys Limited (NYSE:INFY)
Number of Hedge Fund Holders: 24
Infosys Limited (NYSE:INFY) is an information technology company providing consulting, technology, outsourcing, and next-generation digital services. The company is based in Bengaluru, India, and operates in North America, Europe, India, and internationally. It provides app development and management, independent validation, product engineering, and other services.
Wedbush analyst Moshe Katri holds an ‘Outperform’ rating on Infosys Limited (NYSE:INFY) shares as of July 25 and has a $25 price target on the stock.
In July, Infosys Limited (NYSE:INFY) raised its fiscal 2023 revenue growth guidance to between 14% and 16%, versus the consensus estimate of 11.7%. The company’s revenue in the first quarter of its fiscal 2023 was $4.3 billion, up 15.2% year-over-year and beating estimates by $51.6 million. Infosys Limited’s (NYSE:INFY) EPS is expected to rise by 10% over the next three-to-five years.
There were 24 hedge funds long Infosys Limited (NYSE:INFY) in the second quarter, compared to 25 hedge funds in the previous quarter. Their total stake values were $988 million and $2.3 billion respectively.
8. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 25
NIO Inc. (NYSE:NIO) is an automobile manufacturing company that designs, develops, and sells smart electric vehicles in China. The company offers a range of vehicles including five, six, and seven-seater electric SUVs and smart electric sedans. It also provides energy and service packages to its customers.
Edison Yu, an analyst at Deutsche Bank, reiterated a ‘Buy’ rating on NIO Inc. (NYSE:NIO) shares on August 26. The analyst also holds a $45 price target on the stock.
Shares of NIO Inc. (NYSE:NIO) have been trading higher this month in light of July deliveries rising by about 27% year-over-year. The company delivered 10,052 vehicles in July, and 60,879 vehicles on a year-to-date basis. The latter figure represents an increase in deliveries of about 22%.
Renaissance Technologies was the largest stakeholder in NIO Inc. (NYSE:NIO) as of the close of the second quarter, out of a total of 25 hedge funds long the stock. Jim Simons’ fund held 17.8 million shares in the company, worth $386 million.
Horos Asset Management, an investment management firm, mentioned NIO Inc. (NYSE:NIO) in its first quarter 2022 investor letter. Here’s what it said:
“At the beginning of April the CSRC (China Securities Regulatory Commission) announced possible changes in its regulation that would allow this inspection by foreign auditors, provided that the companies previously communicate to this body the state secrets that would be exposed, as well as the sensitive information that they might have to hand over, and the subsequent audit is carried out in a framework of collaboration with the CSRC. In short, a move in the direction desired by the SEC, although still far from the optimal result, that is, unrestricted access to information. While these negotiations between the two regulatory bodies are progressing, Chinese companies have to decide how best to preserve their interests. Other entities, such as the electric vehicle manufacturer Nio, have just started trading on this stock market.”
Just like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG), NIO Inc. (NYSE:NIO) has steadily risen among the ranks of the most popular stocks hedge funds are pouring into today.
7. Pinduoduo Inc. (NYSE:PDD)
Number of Hedge Fund Holders: 41
Pinduoduo Inc. (NYSE:PDD) operates an e-commerce platform in China, by the name of Pinduoduo. It offers products such as apparel, shoes, bags, mother and childcare products, food and beverages, and more. The company is based in Shanghai, China.
An ‘Equal Weight’ rating was placed on Pinduoduo Inc. (NYSE:PDD) shares on July 11 by Morgan Stanley’s Eddy Wang, who has a $70 price target on the stock.
Pinduoduo Inc. (NYSE:PDD) grew revenue by 36% year-over-year in Q2, and its EPS is expected to rise by 40% over the next three-to-five years. Pinduoduo Inc. (NYSE:PDD) shares have been gaining tremendously in August following the Chinese government’s announcement that it will introduce new stimulus spending to boost the local economy.
Pinduoduo Inc. (NYSE:PDD) was owned by 41 hedge funds in the second quarter, compared to 36 hedge funds in the previous quarter. Their total stake values were $1.8 billion and $1.4 billion respectively.
6. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 45
Baidu, Inc. (NASDAQ:BIDU) is a communication services company offering internet search services in China. The company operates through its Baidu Core and iQIYI segments. It provides the Baidu App to provide search, feed, and other services on mobile devices.
Macquarie’s Esme Pau initiated coverage of Baidu, Inc. (NASDAQ:BIDU) shares on August 26 with an ‘Outperform’ rating. Pau also placed a $188 price target on the stock.
As of the close of the second quarter, 45 hedge funds were long Baidu, Inc. (NASDAQ:BIDU), owning a collective $2.1 billion in shares. Of those funds, Ariel Investments was the largest stakeholder in the company, holding 2.64 million shares worth $393 million.
Horos Asset Management, an investment management firm, mentioned Baidu, Inc. (NASDAQ:BIDU) in its first quarter 2022 investor letter. Here’s what the firm said:
“Although the initial reaction of the Chinese government was passive, it seems that the blacklist published by the SEC, which already includes companies as important as the technology giant Baidu, has shaken things up. Thus, at the beginning of April the CSRC (China Securities Regulatory Commission) announced possible changes in its regulation that would allow this inspection by foreign auditors, provided that the companies previously communicate to this body the state secrets that would be exposed, as well as the sensitive information that they might have to hand over, and the subsequent audit is carried out in a framework of collaboration with the CSRC. In short, a move in the direction desired by the SEC, although still far from the optimal result, that is, unrestricted access to information.
While these negotiations between the two regulatory bodies are progressing, Chinese companies have to decide how best to preserve their interests. In this regard, some companies are already listed on the Hong Kong stock exchange, as is the case of the three major technology companies (Alibaba Group, Tencent Holdings and Baidu).”
Baidu, Inc. (NASDAQ:BIDU), like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG), has long been a popular stock with institutional investors.
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Disclosure: None. 10 Best ADR Stocks To Buy Now is originally published on Insider Monkey.
