In this article, we will look at the 7 Cheap Internet Stocks To Invest In Now.
What’s Happening with China’s Stock Market
Recently, China’s stock market has seen a sharp rally, driven by some aggressive measures by the government to revive the economy. China is the world’s second-largest economy and one of the key players in the technology industry. This huge economy has faced a series of challenges for the past few years in the shape of a sharp property market downturn and a lack of consumer confidence.
The government measures include interest rate cuts and liquidity injection into the market. On September 24, Reuters reported China’s central bank cut bank reserve requirement by 50 basis points and it also reduced interest rate by 20 basis points to 1.5%. Moreover, the bank also plans to issue 2 trillion yuan in special sovereign bonds.
These measures resulted in the CSI 300 index trading higher. The index closed 4.5% higher after the announcement whereas the Hong Kong Index gained 3.6%. This move by the Chinese central bank is said to have a positive effect around the globe. Analysts in the United States are already discussing the news as “China Boost”. While many analysts are calling this boost to be short-lived, others are confident that this is a positive mood and will benefit the market in the long term.
David Tepper, Appaloosa Management founder and president and Carolina Panthers owner joined CNBC for an interview recently to talk about the global impact of the Chinese stimulus.
While drawing a comparison between the Chinese and the United States stock markets, Tepper pointed out that Chinese stocks have been trading at single-digit multiples with earnings expected to grow in double digits for major stocks at least. On the other hand, the United States S&P average is sitting at more than 20 times.
Tepper believes that China has exceeded expectations with the recent move and while quoting the government officials of China he pointed out that they are willing to do more if needed. He further emphasized that the central bank is encouraging buybacks of stocks and they are even lending money to do that at very cheap rates. This is an internal stimulus that is going to encourage consumption and Tepper believes that the Chinese government is doing everything it can to revive the economy.
While talking about the global impact of this move, Tepper mentioned that the European market is already making cuts, the United States market has seen one cut already with more expected during the year, and with the Chinese making cuts Japan is expected to follow suit. Tepper thinks this is a very good scenario for undervalued stocks in China and around the world in general. As an American investor as well, Chinese stocks look cheap when compared to the market average. Moreover, Tepper thinks that the United States is not a cheap market currently, he thinks it is slightly overvalued. Though it is a tough comparison, if you compare the price-to-earnings ratio of global stock markets, the United States will find itself slightly overvalued.
With that let’s take a look at 7 cheap stocks to invest in now.
An aerial view of a bustling metropolis with internet towers in the distance.
Our Methodology
To compile the list of 7 cheap internet stocks to invest in now we used the Finviz stock screener and ETFs. Using these sources we aggregated a list of 15 internet stocks. From these stocks we selected stocks that are trading below the Forward Price-to-Earning ratio of 23.98 (the market’s forward P/E as per the Wall Street Journal) and earnings expected to grow during the year. Once we had the list of cheap internet stocks, we then ranked them based on the number of hedge funds that held stakes in them in Q2 2024, which we took from Insider Monkey’s database of over 900 hedge funds. The list is ranked in ascending order of the number of hedge fund holders.
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).
7 Cheap Internet Stocks To Invest In Now
7. Tencent Music Entertainment Group (NYSE:TME)
Forward P/E Ratio: 16.67
Earnings Growth This Year: 26.40%
Number of Hedge Fund Holders: 25
Tencent Music Entertainment Group (NYSE:TME) is like Spotify of China, maybe more, due to its cheap valuation. The company operates as a leading online music and audio entertainment platform in China. Popular streaming apps like QQ Music, Kugou Music, Kuwo Music, and WeSing enable users to access a vast music library. It also has social entertainment features that allow users to engage socially through music.
The recent ban on live streaming in Beijing has somewhat hindered the growth of the company. However, its paying subscribers for music and entertainment categories are keeping the business running at a steady pace. The ban resulted in revenue decreasing 17% year-over-year, but the paying music subscribers and entertainment subscribers increased 17.7% and 5.3% respectively, during the second quarter of 2024.
This stark in subscriptions led to an increase in net income of 31.1% year-over-year during the quarter.
The investment case for Tencent Music Entertainment Group (NYSE:TME) remains positive due to its robust fundamentals. The company has grown its top line by 5% and bottom line by 23% during the past 5 years. Moreover, management remains confident that its growing number of subscriptions will soon overcome the slowdown caused by the ban.
TME is cheap at current levels, it is trading at 16.67 times its forward earnings while the market average sits at around 24. Moreover, its earnings are expected to grow by 26.4% during the year. Thereby making it one of the cheapest internet stocks to invest in now.
Polen Global SMID Company Growth Strategy stated the following regarding Tencent Music Entertainment Group (NYSE:TME) in its Q2 2024 investor letter:
“Tencent Music Entertainment Group (NYSE:TME), China’s equivalent to Spotify, posted another robust quarter with continued improvement in profitability. Its music business has continued to perform well in a robust pricing environment, leading to robust revenue and earnings growth. The company now has over 113 million paying music subscribers, a more than 20% year-over-year increase and revenue mix shift. Higher average revenue per paying user has led to the company’s highest gross margin in five years.”
6. Yelp Inc. (NYSE:YELP)
Forward P/E Ratio: 9.85
Earnings Growth This Year: 23.70%
Number of Hedge Fund Holders: 26
Yelp Inc. (NYSE:YELP) is a community driven media platform that connects people with local businesses. The company has developed a unique business model that helps both local businesses and consumers. It helps businesses to reach a large audience of potential customers with the company’s more than 74 million unique visitor base. On the other hand, it helps customers make informed purchasing decisions through the review based system that ranks businesses in various industries based on customer experience.
The business model of Yelp Inc. (NYSE:YELP) naturally attracts lots of advertisement revenue. In addition, the company also offers subscription and licensing services that allow businesses to use increased visibility and analytics. The company has been focused on developing its platform through a product led strategy. In 2023, alone it launched more than 60 new product features which included an AI-powered search feature and Yelp Guaranteed, that allows platform trusted service providers.
The product led strategy seems to be working well for the company, as it was able to grow its revenue by 6% year-over-year reaching $357 million during the second quarter of 2024. Its home services segment and self-serve channel were main contributors and grew 15% and 20%, respectively during the same time. In terms of profitability as well Yelp Inc. (NYSE:YELP) has improved its margins to 11%, the most recent quarter posted a 158% increase in net income, indicating robustness of its fundamentals.
Yelp is also cheap at current levels. It is trading at a Forward P/E of 9.85 while the market average sits at around 24. Moreover, its earnings are expected to grow by 23.70% during the year, making it a cheap internet stock to invest in now.
5. eBay Inc. (NASDAQ:EBAY)
Forward P/E Ratio: 13.32
Earnings Growth This Year: 13.70%
Number of Hedge Fund Holders: 38
eBay Inc. (NASDAQ:EBAY) is an international e-commerce company that operates an online marketplace allowing users to buy and sell a range of products. E-commerce is one of the biggest categories of Internet stocks, moreover, the cheap valuation of the company in question, makes it one of the cheapest Internet stocks to invest in now.
eBay Inc. (NASDAQ:EBAY) is one of the pioneers when it comes to the e-commerce industry. It has a presence in more than 200 countries and allows businesses to sell without overhead international selling charges.
The second quarter of 2024, highlighted its market leading position and ability to stay profitable under a competitive market environment. The revenue of the company was up 2% year-over-year, with gross merchandise value (GMV) increasing 1% during the same time. Both figures bested the upper boundary of the internal guidance.
eBay Inc. (NASDAQ:EBAY) has been incorporating the use of technology into its platform and has introduced AI features that help personalize product listings. It also enjoys significant support from its advertising business and generated around $398 million in advertisement revenue up 8% year-over-year.
With robust financials under stressful conditions, management has high expectations for the upcoming quarter. It expects revenue of $2.56 billion and $18.2 billion in GMV for the FQ3 2024.
4. JD.com, Inc. (NASDAQ:JD)
Forward P/E Ratio: 8.36
Earnings Growth This Year: 27.70%
Number of Hedge Fund Holders: 59
JD.com, Inc. (NASDAQ:JD) is another major player in the e-commerce industry and one of the cheapest internet stocks to invest in now. The company focuses on online retail and marketplace services. It allows users to sell and purchase a wide range of products from technology equipment to day-to-day products.
The company just crossed $4 billion in revenue during its second quarter of 2024. JD.com, Inc. (NASDAQ:JD) delivered approximately $4.1 billion in revenue, up 1.2% year-over-year. Moreover, around $3.3 billion came from its general merchandise products.
Although online retail has been one of the key contributors of revenue for the company. However, one of the key highlights for the second quarter results can be from its logistics arms, which grew 7.9% year-over-year beating the marketplace and marketing segment in terms of growth.
JD.com, Inc.’s (NASDAQ:JD) business in China is stabilizing again, which is a good sign for its prolonged growth prospects. Moreover, the stock is also cheap at current levels. It is trading at only 8.36 times its forward earnings, with analysts expecting its earnings to grow by around 28% during the year.
Ariel Global Fund stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
3. Pinterest, Inc. (NYSE:PINS)
Forward P/E Ratio: 22.03
Earnings Growth This Year: 33.00%
Number of Hedge Fund Holders: 61
The next company on our list of cheap internet stocks to invest in now has blended the two major concepts of the internet industry to near perfection. Social media and e-commerce are two major components of the greater internet market and the company in question Pinterest, Inc. (NYSE:PINS) has utilized these fields to optimize the decision-making process of users.
The platform captures the users in their discovery phase by giving them inspiration and ideas of their interest. This business model naturally attracts lots of advertisement revenue as companies can use this intent to market personalized content thereby generating a lot of clicks and impressions.
Pinterest, Inc. (NYSE:PINS) has a strong user engagement, the second quarter of 2024 revealed that the company has grown its monthly active users by 12% year-over-year to reach $522 million. This information becomes more important with the fact that around 40% of its user base belongs to Gen Z, who quickly share content driving more user engagement.
The robust investment case is backed by strong financials. The revenue of the company grew 21% globally with Europe revenue growth by 25%. Pinterest, Inc. (NYSE:PINS) has been improving its cost structure, which was evidenced by an 8% increase in average revenue per user.
Everything we have talked about yet becomes more attractive with the cheap valuation of the company. PINS is trading at a forward P/E of 22.03, which is below the market average which sits around 24. On top of that its earnings are expected to grow by 33% during the year, making it undervalued at current levels.
Columbia Contrarian Core Fund stated the following regarding Pinterest, Inc. (NYSE:PINS) in its Q2 2024 investor letter:
“Pinterest, Inc. (NYSE:PINS) – Pinterest delivered first-quarter results at the end of April that were nicely ahead of both consensus expectations and company guidance, resulting in a 6% revenue beat and a 45% free cash flow beat. Its share price rose following the earnings release and continued to move higher throughout the quarter. The company’s prospects should continue to improve as Pinterest is starting to take more and more of its advertisers’ budgets, as its data-rich initiatives are starting to pay greater dividends. Pinterest is a visual search engine with very high commercial intent and exposure to e-commerce growth. E-commerce growth has been a significant driver of global digital ad spending, which is an approximately $400 billion global market.”
2. PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E Ratio: 9.49
Earnings Growth This Year: 84.70%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is another leading e-commerce group with a range of businesses. Pinduoduo and Temu are two of the main platforms of the company among others. It has built a network of logistics, sourcing, and fulfillment capabilities to connect businesses with people.
It has been less than a decade since the company was established. During this short time, PDD Holdings Inc. (NASDAQ:PDD) has grown to compete with the giants and is now recognized as the 3rd largest e-commerce company in China.
One of the key differentiating factors of the company is its focus on small and medium businesses. This results in its product listings being cheaper than its competitors thereby attracting more users. During the second quarter of 2024, the company revealed that it has more than 167 million monthly active users and around 50 million of these users originate from the United States.
In terms of financial growth as well, PDD Holdings Inc. (NASDAQ:PDD) has been doing great. The most recent quarter’s revenue grew by 86% year-over-year reaching around $13.74 billion, with net margins growing 8% during the same time.
Its cheap valuation comes as another attraction for its investors. The stock is trading at only 9.49 times its forward earnings, with analysts expecting its earnings to grow by 84.7% during the year. Thereby, making it one of the cheapest internet stocks to invest in now.
Hayden Capital stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q2 2024 investor letter:
“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (a leading Chinese technology news outlet) confirmed Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margins in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve ~10 – 15% net margins.
The company doesn’t disclose the exact scale of Duoduo Grocery, but our calculations indicate it’s likely around ~RMB 300BN this year, and still growing in the double-digits. At that level, the division is likely contributing ~US $2.5BN in annual profits.
It’s an impressive result, but admittedly, not a huge needle-mover in light of the total $17.6BN net profits the company is expected to make this year (~14% of overall profits)…” (Click here to read the full text)
1. Alphabet Inc. (NASDAQ:GOOGL)
Forward P/E Ratio: 21.14
Earnings Growth This Year: 31.90%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the leaders when it comes to internet stocks. At its basics, the company is an international technology hub with operations running in cloud computing, internet search, artificial intelligence, software development, and hardware as well. Its search engine Google has gone on to become a synonym for internet search engine.
While Google continues to maintain it’s market-leading position with more than 91% market share, Alphabet Inc. (NASDAQ:GOOGL) is continuously developing its AI technology. The company has launched its large language model Gemini to compete in the generative AI race. And has plans to invest more than $50 billion in AI development. The company also runs YouTube, which is a video streaming platform.
Apart from this, its cloud business is also soaring with more than 60% of GenAI startups using its Google Cloud. The cloud revenue of the company grew 28.8% year-over-year during the second quarter of 2024. Overall, Alphabet Inc. (NASDAQ:GOOGL) was able to grow its revenue by 14% to reach $84.7 billion.
By the end of the year, management anticipates the company’s revenue to reach $100 billion. What’s truly impressive is its cheap valuation. GOOGL is trading at a forward P/E of 21 and analysts expect its earnings to grow by 32% during the year, making it one of the cheapest internet stocks to invest in now.
Patient Capital Opportunity Equity Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOGL) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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