We recently published a list of 10 Cheap Chinese Stocks to Buy Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against other cheap Chinese stocks to buy now.
Chinese Market Outlook 2025
On February 12, Russell Investment released its Chinese market outlook for 2025. The investment firm noted that the outlook for China in 2025 is marked by several key factors, including the potential for new stimulus measures, advancements in artificial intelligence, and the impact of US tariffs on Chinese exports. Investors are closely watching whether the Chinese government will implement additional economic support measures, similar to those seen in 2024. This year, however, the landscape is complicated by the introduction of the DeepSeek AI model and the imposition of US tariffs on Chinese goods.
As per the report, the property sector remains a significant drag factor to China’s economy, with developers facing pressure and consumers cautious about purchasing property. Despite this, there are tentative signs of improvement in secondary home transactions, suggesting that supportive measures from 2024 may be starting to take effect. However, consumer confidence remains low, nearing the lows of the past four years. Moreover, the economy is also at risk of deflation, which could lead consumers to delay major purchases in anticipation of further price drops.
Russell Investment further noted that the National People’s Congress meeting in March will be crucial, as it will announce the economic growth target for the year and any new policy measures. If a growth target of around 4.5% is set, substantial stimulus measures may be required to achieve it. The United States has imposed a 10% tariff on Chinese imports, which China has responded to by placing tariffs on $14 billion worth of US goods. These tariffs are expected to reduce China’s GDP growth by about 0.3 percentage points.
On the bright side, China has seen significant advancements in AI, with companies like DeepSeek achieving notable gains. However, the export embargo on major chip manufacturers by the US poses a challenge to further AI development in China. The focus is likely to shift towards efficiency improvements in AI capabilities. Russell Investments views the outlook for Chinese equities as marginally positive. This assessment is based on a cycle, valuation, and sentiment framework. Despite economic uncertainties, Chinese companies have improved their return on equity, and analysts expect about 9% earnings-per-share growth in 2025. Valuations for Chinese equities appear reasonable compared to other emerging markets, with forward multiples at around 10 times and a PEG ratio at the 15th percentile historically.
Our Methodology
To compile the list of 10 cheap Chinese stocks to buy now, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated a list of stocks trading below the forward P/E of 15 and earnings growth expectations this year. Next, we cross-checked the Forward P/E from Seeking Alpha and Earnings growth from Yahoo Finance. Lastly, after sorting our list by market capitalization, we ranked the stocks in ascending order based on the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 database of 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 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 Ratio: 10.11
Earnings Growth This Year: 76.13%
Number of Hedge Fund Holders: 85
PDD Holdings Inc. (NASDAQ:PDD) is a multinational company primarily operating through e-commerce business. The strategic edge of the company lies in the strong network it has established to help with logistics and sourcing. During the fiscal third quarter of 2024, the company grew its total revenue by 44% year-over-year, to reach $14.16 billion.
GreenWood Investors in its Q4 2024 investor letter noted PDD Holdings Inc. (NASDAQ:PDD) to be one of the detractors from the fund’s portfolio in 2024. This was due to the transitory foreign exchange translation losses and the company’s decision to reinvest its margins into growth and supplier ecosystem improvements. The fund praised PDD’s relentless corporate culture, led by founder Colin Huang, which has enabled the company to achieve a gross merchandise value (GMV) comparable to Amazon’s in a much shorter time frame. Moreover, the fund is attracted to the company’s international expansion through Temu, which is growing sales at a rate four times faster than Amazon. It is one of the cheap Chinese stocks to buy now.
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 2nd on our list of cheap Chinese stocks to buy now. While we acknowledge the potential of PDD to grow, 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.