We recently published a list of the 10 Cheap Internet Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against the other cheap internet stocks to buy according to hedge funds.
Would March See a Pickup in Retail?
On March 6, Jan Kniffen, CEO of J Rogers Kniffen, appeared on CNBC’s ‘Squawk on the Street’ to discuss his outlook on retail. Weaving several threads of news in the retail space, he said that the fourth quarter was great despite an awful January and February due to the weather. However, the market is going to see a pickup in March as the calendar inches closer to Easter because even in the otherwise horrible month of February, the market saw a good Valentine’s Day.
He believed that March would see a pickup because the consumer still feels healthy, even if they are nervous. Spending has been pretty good on everything other than weather-related items, but the traffic has been slow. Kniffen believed that this trend is weather-related as well. He said that he isn’t too concerned yet, but while the retail numbers today may not make one nervous, tomorrow’s numbers may have the opposite effect. According to Kniffen, retailers are only seeing a little weakness, and that’s all weather-related.
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What Could Trump’s Tariffs Mean for the Retail Industry
Talking about the potential effects of tariffs on retailers, he was of the view that power and negotiating skills make up the necessary concoction to deal with the scenario. Companies with better logistics teams, experience with dealing with tariffs strategically, and a healthy position in terms of balance sheet are more likely to do well. Therefore, companies in the sector that are well-financed, boast great teams, and are executing flawlessly will do better than those struggling with dealing with tariffs. While Kniffen said that he couldn’t claim he isn’t worried about the tariffs, he isn’t terrified of them either, as the market knows how to deal with them.
The real question he posed was whether all that the market gets is 10% to 20% in China or whether it would really get 25% in both Canada and Mexico. In the second case, the whole economy gets dislocated, the consumer gets nervous, and everyone is terrified that they will quit spending and the market may go into a consumer-led recession.
However, if the tariffs were imposed only on China, the situation might be different. China has a significant export economy and would have to absorb a big chunk of the tariffs. It did so last time as well and is likely to do the same this time as well. The market will then also see substitution, trade down, and all the stuff we see when the consumer has to deal with it. The retail market will react to all that, and the big and strong members will likely react better.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of internet stocks with forward P/E less than 15, including stocks from the internet retail and internet content & information sectors. We then selected the top 10 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a customer using the company’s e-commerce platform whilst shopping online.
PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E: 10.66
Number of Hedge Fund Holders: 85
PDD Holdings Inc. (NASDAQ:PDD) is a Chinese multinational online commerce group and retailer that owns and operates a range of diverse businesses. It also has a strong logistics, sourcing, and fulfillment capabilities network that supports its operations. The company owns Pinduoduo, a popular online commerce platform in China, and also runs the fast-growing e-commerce marketplace Temu. Temu now operates in more than 50 countries worldwide.
Analysts are bullish on PDD Holdings Inc. (NASDAQ:PDD) and expect it to grow at a compound annual growth rate of 38% to 2026, driven by market share gains in China. Its continued expansion into international markets through the Temu platform is anticipated to accelerate and support this growth. Temu connects Chinese sellers and overseas buyers, allowing PDD Holdings Inc. (NASDAQ:PDD) to diversify its revenue base. It also holds a competitive advantage due to its group-buying model from small and medium businesses, which helps its listings to be cheaper than its competitors.
PDD Holdings Inc. (NASDAQ:PDD) is also focused on a high-quality development strategy and has been actively optimizing its platform ecosystem to deliver impactful results over the long run. This strategy has helped the company report impressive financial results. Its total revenues for fiscal Q3 2024 came up to around $14.157 billion, reflecting a 44% increase from the same quarter in 2023. Operating profit in the quarter also grew by 46% compared to the same quarter last year. The company is also moving a significant amount of its fulfillment operations to US-based facilities for Temu, which is expected to cut delivery time and shipping costs.
GreenWood Investors stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q4 2024 investor letter:
“Aside from transitory foreign exchange translation losses (as opposed to trading losses), the two other notable detractors from our portfolio were MEI Pharma and PDD Holdings Inc. (NASDAQ:PDD) in 2024.
PDD Holdings founder Colin Huang is who inspired us to “run 3x faster,” as the relentless corporate culture of PDD has built an e-commerce company with roughly the same GMV (gross merchandise value) of Amazon in one-third the time it took Amazon to build itself. Shares reacted negatively when the company decided to reinvest its record margins into even faster growth and creating a healthier supplier ecosystem. As it looks set to create a second Amazon with its international site Temu, we are highly attracted to the opportunity. Sales are growing 4x faster than Amazon’s, yet shares are priced at less than a quarter of the Amazon earnings multiple.
PDD is a perfect example of why we want to look outside of the “Big Ten” companies that are nearly a third of global market indices. We would not want to compete with the demanding corporate culture of PDD and Temu. Its operating model is relentless at identifying efficiency throughout the manufacturing and selling supply chain. Not only is it a more formidable competitor than Amazon, and growing much faster, but the valuation is 4x more attractive than Amazon’s…” (Click here to read the full text)
Overall, PDD ranks 1st on our list of the cheap internet stocks to buy according to hedge funds. While we acknowledge the potential of PDD as an investment, 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.