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Why Pinduoduo (PDD) Stock is a Compelling Investment Case

Tao Value recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 36.45% for the quarter, outperforming its benchmark, the MSCI All Country World Index (ACWI) which returned 18.81% in the same quarter. You should check out Tao Value’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Tao Value highlighted a few stocks and Pinduoduo Inc. (NASDAQ:PDD) is one of them. Pinduoduo Inc. (NASDAQ:PDD) engages in the development and management of an e-commerce platform. Year-to-date, Pinduoduo Inc. (NASDAQ:PDD) stock gained 122.2% and on July 29th it had a closing price of $84.03. Here is what Tao Value said:

“Pinduoduo (ticker: PDD) is one of our highly convicted ideas since Q3 18. The original thesis can be viewed in our Q3 18 letter1 . It gained 139% over the past quarter. Like SE’s performance, I think such performance is driven more by the uneven asset price inflation from both fiscal and monetary stimulus, than business intrinsic value creation. On business side, PDD disclosed faster than expected GMW growth during Q1 2020, yet larger than expected loss due to relief measures for merchants. During the earnings call, management disclosed many details from which reaffirm strong rationality. For example, CEO Colin Huang mentioned that increasing ARPU is not part of management’s KPI but believe that it would be a natural outcome if they increase users’ engagement. They also disclosed a key metric for measuring the engagement – MAU/Annual Active Buyer, which increased from 65.4% Q4 19 to 77.6% during Q1 20. This shows PDD’s management really sees through the essence of its business driver and has good measurement on what matters the most. Although I typically don’t comment on developments in the new quarter, I would make an exception here to discuss about Huang’s big announcement on July 1, 2020, to step down as CEO and to reduce his stake from 43.3% to 29.4% (all of which are transfers, not sales). The key risk is how much Huang still intends to involve in PDD. Huang seems to have grant goals, and PDD may be just a start. We will see how the succession plan folds out and act accordingly.”

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This isn’t the first time Tao Value talked about Pinduoduo Inc. (NASDAQ:PDD) favorably either. The investment firm has been a long time Pinduoduo Inc. (NASDAQ:PDD) bull. Last month, we shared Tao Value’s bullish Pinduoduo Inc. (NASDAQ:PDD) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on Pinduoduo Inc. (NASDAQ:PDD)  stock decreased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in Pinduoduo’s growth potential. Our calculations showed that Pinduoduo Inc. (NASDAQ:PDD)  isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.