We recently published a list of 10 Cheap NASDAQ Stocks To Invest In Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against other cheap NASDAQ stocks to invest in now.
How Did The Stock Market Perform In Q3 2024?
The stock market has been following an uptrend since it rebounded from the bear market in Q4 2022. The bear market that ended in Q2 2022 was regarded to be a fed-induced low as the interest rates were high during that time. However, since then the S&P 500 has finished higher in seven out of the eight quarters, including four consecutive quarters of growth. Over the last four quarters, the index has returned 36.3%. This figure is significant because such high return rates were last seen when the market was recovering from 2020 COVID-19 lows.
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There has been significant stimulus for the bull market to continue ranging from the Fed cutting rates to the China stimulus, and an easing economy with strong data points. Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business and WisdomTree chief economist shared his note on November 11 talking about the economic landscape and his perception of the election results. He describes last week as one of the most pivotal in recent memory, starting with the Federal Reserve’s decision to cut interest rates by 25 basis points during its November meeting. This decision reflects a cautious approach, as Fed Chair Jerome Powell’s omission of phrases like “further progress” about inflation suggests a recognition that inflationary progress has plateaued. Siegel aligned with Powell’s assessment of rental inflation, indicating that the Fed is now fully aware of disinflationary trends within the housing sector.
Siegel anticipates another rate cut at the December meeting, contingent on upcoming economic data, including the Consumer Price Index (CPI), Producer Price Index (PPI), retail sales figures, and the November jobs report. He notes that if these indicators show weaker-than-expected results, it could increase pressure on the Fed to implement further cuts.
Are We Going To Have A Third Year Of NASDAQ Bull Market?
Over the past 2 years starting from November 16, 2022, the NASDAQ composite has seen a 73% rise during this bull market. Analysts are now debating whether we can have a third year of this bull market or not. To discuss this, Nick Colas, DataTrek Research co-founder, joined CNBC on October 26. Colas thinks that this is a positive sign for the index and that there is still room for the NASDAQ to run higher.
He pointed out that if we look back at 1971 when the index started, since then we have had 10 instances where the index rallied for two straight years. Historic data shows that in six of these 10 times, the NASDAQ index continued to rally for the third year as well and in four instances it didn’t. Colas mentioned that the overall average return of these 10 years was 4.4%, which was not very impressive, however, the lower return rate was due to the 4 losing years when the index failed to rally. The four losing years as pointed out by Colas were 1984, 1987, 1990, and 2011. Three of these 4 years were characterized by crises including the 1987 market crash, the 1990 invasion of Kuwait by Iraq, and the European debt crisis in 2011. If we take these 4 years out of the equation, the overall return for the NASDAQ in year three is 13.3%. Therefore, Colas believes that as long as we don’t have any crisis events, the momentum is historically said to continue in year three.
Colas thinks the index should have at least a 10% return during the third year as historically speaking the index has delivered as much as 20% return rates during the third year. He acknowledges that many analysts think that since we have had two very strong years of growth the third might be a disappointment. However, Colas believes that today’s market environment is much healthier than the one we have had in history, and, based on that, the NASDAQ still has room to run.
Our Methodology
To curate the list of 10 cheap NASDAQ stocks to invest in now, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. We used the screener to get an aggregated list of NASDAQ stocks that are trading below the average Forward P/E of 25.37 (as per Wall Street Journal). Next, we checked the Forward P/E of each stock from Seeking Alpha and earnings growth from Yahoo Finance. Lastly, we ranked the stocks in ascending order, based on the number of hedge funds holding each stock in Q2 2024, as per Insider Monkey’s database.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A financial analyst looking at a monitor displaying the stocks of the public company.
PDD Holdings Inc. (NASDAQ:PDD)
Forward Price to Earnings Ratio: 9.94
Earnings Growth: 81.70%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) ranks 3rd on our list of cheap NASDAQ stocks to invest in now. It is trading at a 45% discount to its sector and its earnings are expected to grow by around 82% during the year. The company operates as an e-commerce company owning renowned retail marketplaces such as Pinduoduo and Temu. It has developed a robust e-commerce business model with logistics and a vast seller network in only 10 years since its inception.
As the company competes with established players in the market, it has found its competitive edge in targeting small and medium businesses. This allows its marketplace platform listings to be cheaper than its competitors thereby attracting more customers. During the second quarter of fiscal 2024, PDD Holdings Inc. (NASDAQ:PDD) reached 167 million monthly active customers with more than 50 million customers from the United States.
Moreover, it also improved its top line by a staggering 86% year-over-year to $13.74 billion. Not only this, its operating profits were also up by 156% during the same time to reach $4.48 billion. Robust top and bottom line growth topped with a cheap valuation makes PDD Holdings Inc. (NASDAQ:PDD) an attractive investment opportunity.
Baron Global Advantage Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q3 2024 investor letter:
“During the third quarter we re-initiated a small investment in PDD Holdings Inc. (NASDAQ:PDD). We believe the company is truly unique in the global e-commerce landscape, with an innovative business model, and very strong growth prospects. Founded in 2015 as Pinduoduo, the company has grown into China’s second-largest e-commerce player, capturing over 20% market share. PDD’s Consumer-to-Manufacturer (C2M) model, which connects manufacturers directly to consumers eliminated intermediaries, allowing for ultra-low prices that attract price-sensitive consumers and small merchants. Its discovery-based, algorithm-driven shopping experience has created a highly engaging platform, driving user and merchant growth in a virtuous cycle. We expect PDD to continue gaining share in China given its dominance in the value-for-money segment, growing branded product offerings at affordable prices, and high operational efficiency. PDD’s network effects and cost advantage, supported by its lean structure and efficient C2M model, are set to grow as it scales, both domestically and internationally. Its cross-border e-commerce platform, Temu, launched in September 2022, has rapidly become one of the world’s fastest-growing apps. Leveraging China’s excess capacity and PDD’s supply-chain efficiency, Temu wields strong pricing power over Chinese suppliers and attracts overseas consumers with competitively priced products. While still in early stage, Temu has achieved 2% of the global ex-China e-commerce market and a variable breakeven in the U.S. market, underscoring PDD’s focus on sustainable growth. Despite its rapid growth and profitability, PDD trades at a double-digit free cash flow yield (despite losses from the early-stage international expansion through Temu), significantly below sector peers. While concerns over geopolitical tensions exist, we believe PDD’s growing competitive edge, strong cash flow, and disciplined management position it to create substantial long-term value for shareholders.”
Overall, PDD ranks 2nd on our list of cheap NASDAQ stocks to invest in now. While we acknowledge the potential of PDD to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PDD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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