We recently published a list of 10 Oversold Value Stocks To Buy Right Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against the other oversold value stocks.
After Trump’s victory in the presidential election, US stocks surged to record highs. Much of the stock market’s history reveals that value stocks have outperformed their growthier counterparts but the trend has reversed over the last decade. With mega-sized technology stocks especially those driven by AI dominating, the reverse trend intensified. It is important to consider that the Morningstar US Large Growth Index has returned 258% and the Morningstar US Large Value Index has returned 148% in the last decade, reflecting a significant difference.
Growth stocks looked unstoppable until a week in July when the Morningstar growth index fell 3.97% while the value index climbed 3.39%. This was when the investors were confident about the interest rate cuts that were to be executed in the later part of the year. Thus, it looked like they shifted their focus from big tech to more underperforming sectors.
Over the next year, the outlook for value stocks looks bright as concluded by Bankrate’s quarterly Market Mavens Survey. The survey revealed that experts see value-priced equities outperforming over the next four quarters. 42% of respondents preferred value stocks to growth stock over the next year while 33% think returns will be about the same.
When leading investing professionals were asked whether value stocks or growth stocks would offer greater returns over the next year, they put forward different reasons for their preferences. While the view regarding value outperforming growth at the start of a rate-cutting cycle was noticed in the responses, one of the experts inclined towards value stocks by stating:
“If the Fed is cutting rates because the economy is faltering, market participants are apt to seek out the best growth opportunities in a weakening growth environment. However, if economic growth holds up and rates come down, value would be the place to be for the best return prospects.”
Others were of the opinion that falling inflation and interest rates would benefit both classes equally.
A close-up of a customer using the company’s e-commerce platform whilst shopping online.
Our Methodology
In order to compile a list of the 10 oversold value stocks to buy right now, we first used a stock screener to identify value stocks that have fallen by at least 30% year-to-date and are trading at a forward P/E ratio under 15, as of November 22. We focused on companies trading in industries including consumer staples, financials, legacy healthcare, industrials, and materials. Finally, we ranked the stocks in ascending order of their hedge fund holders, as of Q3 data.
At Insider Monkey we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
PDD Holdings Inc. (NASDAQ:PDD)
Year-to-Date Decline: 31.29%
Forward PE: 7.25
Number of Hedge Fund Holders: 78
PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group owning and operating a portfolio of businesses including Pinduoduo and Temu. While Temu is an online market place, Pinduoduo is an e-commerce platform offering products related to agricultural produce, apparel, shoes, bags, food and beverage, electronic appliances, and others. The firm was founded by Colin Huang in 2015.
PDD has emerged as one of the major e-commerce players in China. As stated by the investment management company, Baron Funds, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries and lowering costs. With more demand for affordable products in China alongside small-scale merchants finding alternatives to Alibaba, PDD has driven growth. Even Americans looking for bargains have been heading to Temu, which according to Earnest Analytics, had nearly 17% of the US online discount store market as of last November.
For the third quarter, PDD Holdings Inc. (NASDAQ:PDD) recorded total revenues of RMB99,354.4 million, increasing 44% from RMB68,840.4 million in the same quarter of 2023. Regardless of intense competition and external challenges, the topline growth was good. With the plans to create a healthy and sustainable ecosystem, the firm has been investing in its platform ecosystem through merchant support policies and trust and safety updates. The CEO remains positive about this consistent investment which will be driving impactful results in the long term.
PDD Holdings Inc. (NASDAQ:PDD), the owner of Temu and Pinduoduo, is a prominent e-commerce player which has seen a growth momentum from both home and abroad. As of Q3, the stock is held by 78 hedge funds.
Overall, PDD ranks 1st on our list of oversold value stocks to buy right now. While we acknowledge the potential of PDD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
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