We recently compiled a list of 7 Cheap Rising Stocks to Invest In. In this article we will look at where Western PDD Holdings Inc. (NASDAQ:PDD) ranks among the cheap rising stocks.
The recent Fed rate cuts have been a major catalyst for the market, and have provided an additional boost to an already strong performance. The market started the day with another all-time high on September 26 and it seems like the cuts have been positively influencing market sentiment and activity.
Nevertheless, some experts are still saying that investors are moving with caution as the timeline moves closer to the US elections. Wisdomtree CEO, Jonathan Steinberg recently joined CNBC “Money Movers” as he discussed the impact of the Fed’s actions on market flows and noted that while the 50-basis-point rate cut may reduce recession risks, a significant amount of money remains on the sidelines.
Steinberg explained that many investors are cautious, keeping money in safe places like money market funds, due to uncertainty about the upcoming election and its potential impact on the economy. The differing policies of the candidates make it hard to predict market trends, so people are waiting to see the election results before making big investment decisions.
Expert Opinions on the Election
As the elections move closer, the sentiment has been quite mixed around the candidates as it seems like a very close one. While many have a solid opinion on their favorite candidates, economists and market experts might not be feeling the same.
In our article 7 Best Revenue Growth Stocks to Buy According to Analysts, we discussed Professor Jeremy Siegel’s opinions on the Fed cuts and upcoming elections. Here is an excerpt from the article:
“In a discussion about economic policies from the presidential candidates, Professor Siegel critiqued both sides as extreme and said that their policies are unlikely to be implemented. He said that there would be a divided government that would limit any drastic changes. He stressed that while some policies might be proposed, actual governance would lead to compromises rather than sweeping reforms.”
While Professor Siegel remained neutral and criticized both sides, Harvard professor and former Chairman of the Council of Economic Advisers, Jason Furman seems to be leaning more toward the Democratic Party. However, he too criticized the economic plans of both candidates on September 20 in an interview on CNBC’s Squawk Box.
Insights from Jason Furman on Fed Policy
In the discussion about the Fed’s rate cut policy, Furman noted that while he would have preferred a smaller 25-point cut, he does not believe the Fed has inside knowledge of serious economic risks.
He thinks the move only shows caution over rising unemployment. About the unemployment situation, he said that he is, “a little bit nervous about it too, just not quite as nervous as 50 basis points.”
Furman acknowledged that inflation has come down but pointed out that risks such as potential wage-driven inflation and the possibility of a recession are still there. He appreciated the Fed’s gradual approach, which allows for adjustments in future rate decisions if needed.
Our Methodology
For this article, we used stock screeners to identify over 30 stocks with more than 10% share price gain over the last month and a forward price-to-earnings ratio of less than 15 as of September 27. We narrowed our list to 7 stocks most widely held by institutional investors. The 7 cheap rising stocks are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
PDD Holdings Inc. (NASDAQ:PDD)
FWD PE Ratio: 11.27
1-Month Stock Price Performance: 44.96%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD), formerly known as Pinduoduo Inc., has quickly risen to prominence in the global e-commerce landscape. The company operates the Pinduoduo platform, a well-known e-commerce site in China, which is celebrated for its wide array of products and innovative team purchase model.
It improves the shopping experience and motivates consumers to engage in group buying, making it more appealing for those looking for value. Alongside this, the company manages Temu, an international marketplace designed to provide consumers worldwide with high-quality yet affordable products.
Despite being founded just nine years ago, it has become one of China’s largest e-commerce companies, largely by serving lower-income shoppers in less affluent regions, offering more affordable options compared to competitors.
Analysts are bullish on PDD Holdings (NASDAQ:PDD) as it has a consensus Strong Buy rating from 47 analysts. The average price target of $159.34 has a 17.70% upside to the stock’s price on September 27. It ranks among our cheap rising stocks to invest in.
One of the remarkable aspects of the company’s growth is the popularity of the Temu app, which has garnered an impressive 735 million downloads globally, according to a recent article on the site, Chain Store Age.
Additionally, Temu has seen monthly visits soar past 500 million in the first quarter of 2024, which is evidence of strong consumer interest and engagement with the platform. This kind of traction suggests that the company is effectively reaching a broad audience, which is essential for long-term success in the highly competitive e-commerce sector.
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)
Overall PDD ranks 3rd on our list of the cheap rising stocks to invest in. 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 timeframe. 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 was originally published on Insider Monkey.