In this piece, we will take a look at the top 10 ADR stocks to buy according to hedge funds.
Diversifying an investment portfolio is one of the best ways of spreading risk and minimizing the impact of heightened volatility. While the focus is usually on investing in stocks in various sectors, it’s also prudent to spread risk across multiple countries. American Depositary Receipts (ADRs) offer one of the best ways of spreading risks into companies in various markets instead of focusing on U.S. companies
ADRs are simply securities issued by banks that represent shares of non-U.S. companies. The stocks are often listed in national exchanges and offer a way of investing in foreign companies.
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Global corporations financing, building, and powering the traditional global economy are increasingly surpassing American businesses that once held the top spot in market success. Likewise, companies operating in the more established value sectors, such as Europe, China, and Japan, offer high risk reward opportunities at discounted valuations.
The top 10 ADR stocks to buy, according to hedge funds, are way cheaper, with their valuations sitting near 10-year low multiples. The cheap valuations and prospect of significant upside potential make them attractive compared to mainstream U.S. companies.
As investors endure uncertainty about U.S. interest rates that remain at highs of between 5.25% and 5.50%, many are increasingly paying attention to international equities trading at discounted valuations.
The prospect of lower interest rates before year-end is one catalyst that should continue strengthening sentiments in the equity markets. ADR stocks listed in the U.S. market should be one of the biggest beneficiaries as investors look to diversify their portfolios.
While investors have pulled more than $12 billion in mainland Chinese equities since June, the Financial Times reports that professional investors stay put in foreign stocks, as they offer significant upside potential.
The UK also continues to offer exposure to some of the best stocks right now in the aftermath of the Bank of England cutting interest rates in early August. With one more cut expected before year-end, analysts believe the lower interest rate environment would be positive for the stock market, which should benefit some of the top ADR stocks listed in the US.
Over the past few years, UK companies have been moving into the US to seek broader investor exposure. As late as two decades ago, UK-listed companies accounted for 11% of the MSCI World Index. Now, the figure has dropped to 4% as most companies seek listing in the US owing to the country’s less stringent standards.
While the S&P 500 is up by about 17% for the year in anticipation of the FED cutting rates, the S&P Global 1200 ADR Index is only up by 11% year to date. The underperformance is not a point of concern but affirms that there is plenty of room for growth for most of the ADR stocks.
Amid the high interest rate environment, signs of the US economy plunging into recession are becoming ripe daily. According to CNBC, the country’s unemployment rate rose to 4.3%, its highest level since 2021.
Similarly, U.S. manufacturing fell to an eight-month low, signaling economic weakness amid the high interest rates. Analysts at BCA Research believe the upcoming interest rate cuts could be insignificant in averting the economy plunging into recession.
“Every single one of us now believes there’s a recession, and that’s exactly the opposite of what the market believes. There’s things that are breaking down quite rapidly now. A few rate cuts are not going to prevent a recession. Average recession is 10 months… It takes something like a year before fed cuts start to give a boost to the economy,” Garry Evans, BCA Research’s chief strategist of global asset allocation, told CNBC’s “Squawk Box Asia.”
Amid the recession concerns, U.S. stocks could come under pressure. On the other hand, the Top 10 ADR stocks to buy according to hedge funds could act as safe havens as most are in jurisdictions with low interest rates.
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Our Methodology
To compile the list of Top 10 ADR stocks to buy according to hedge funds, we analyzed the major US indices and settled on stocks of foreign companies with more than 50% upside potential. Once we had consolidated the list, we ranked the stocks in ascending order based on the number of hedge funds that owned it.
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).
Top ADR Stocks To Buy According to Hedge Funds
10. Zai Lab Limited (NASDAQ:ZLAB)
Number of Hedge Fund Holders: 12
Stock Upside Potential: 125.94%
Zai Lab Limited (NASDAQ:ZLAB) is one of the top 10 ADR stocks to buy, according to hedge funds, as it develops and commercializes much-needed therapies for treating oncology autoimmune disorders and infectious diseases. The company has achieved significant commercial growth and maintained financial discipline while developing its product portfolio.
Zai Lab Limited (NASDAQ:ZLAB)’s revenue in the second quarter grew by 45% to $100.1 million as the company benefited from strong demand for VYGART, its lead product for treating myasthenia gravis. Additionally, the company benefited from increased hospital sales of ZEJULA, its lead product for treating ovarian cancer.
Efforts to build a more robust and efficient organization, coupled with our innovative pipeline, positions the biotechnology company for robust topline growth and closes in on profitability by 2025.
“In the second quarter, we achieved impressive commercial growth, maintained financial discipline, and made significant strides across our product portfolio, highlighting our capability to execute on our strategic objectives,” said Dr. Samantha Du, Founder, Chairperson, and Chief Executive Officer of Zai Lab Limited (NASDAQ:ZLAB).
Even though Zai Lab Ltd experienced a total loss of $80.3 million for the quarter, its financial stability is still strong, holding a cash balance of $730.0 million as of June 30, 2024. The firm is persistently concentrating on bringing VYVGART to market and the expected introduction of numerous new products and uses.
The average price target on Zai Lab Limited (NASDAQ:ZLAB) is $40.67 implying upside potential from current levels. Additionally, the number of hedge funds holding stakes in the company dropped to 12 in Q2 2024 from 16 in Q1. Michael Rockefeller And Karl Kroeker’s Woodline Partners is the largest hedge fund shareholder, owning 2.33 million shares valued at $40.42 million.
9. MINISO Group Holding Limited (NYSE:MNSO)
Number of Hedge Fund Holders: 15
Stock Upside Potential: 84.50%
MINISO Group Holding Limited (NYSE:MNSO) is a Chinese company that sells lifestyle and pop toy merchandise. It offers items across different types, such as home decor items, tiny electronics, fabrics, accessories, and beauty instruments.
Amid the slowdown in the Chinese economy, MINISO Group Holding Limited (NYSE:MNSO) continues to deliver better-than-expected results, affirming growth in the core business. In its fiscal third quarter, revenues were up 26% to $515 million, driven by a 19.3% increase in the average store count and 9% same-store sales growth. Revenue generated overseas was up 53%.
Adjusted net profit in the quarter under review was $85.4 million, representing an increase of 27.7% Y/Y. Adjusted net margin was 16.6%, compared to 16.4% in the year-ago period. The better-than-expected results demonstrate the strength of the business model while reflecting MINISO Group Holding Limited (NYSE:MNSO)’s ability to execute its I.P. and globalization strategy.
Mr. Guofu Ye, Founder, Chairman, and CEO of MINISO, commented, “This past March Quarter has seen our fastest pace of store openings for the first quarters ever, establishing a robust foundation towards our goal of a net addition of 900 to 1,100 stores in 2024. We also embarked on our path towards our five-year strategic goal with a stronger March Quarter compared to the high base of the same period of 2023. We are pleased to see the initial effect from our I.P. and globalization strategies and as a result, our total revenue reached RMB3.7 billion with a 26% increase year over year, which was primarily attributable to a 19% increase in average store count and a 9% same-store sales growth.”
The solid financial results are one reason MINISO Group Holding Limited (NYSE:MNSO) commands an average price target of $29.60, implying an 84.50% upside potential from current levels. According to the Insider Monkey database, 15 hedge funds held stakes in the company as of the end of Q2 2024.
8. Arcadium Lithium plc (NYSE:ALTM)
Number of Hedge Fund Holders: 19
Stock Upside Potential: 71.27%
Based in Shannon, Ireland, Arcadium Lithium plc (NYSE:ALTM) is a leading provider of lithium chemicals in high demand for batteries for electric vehicles. It offers battery-grade lithium hydroxide, lithium carbonate, butyl lithium, and high-purity lithium metal for electric vehicles and electronics.
Arcadium Lithium plc (NYSE:ALTM) has been under pressure due to the lithium market’s weakness. However, the situation is not expected to stay still forever, and lackluster electric vehicle demand should improve; consequently, fuel demand for the company’s battery fades lithium hydroxide.
The temporary oversupply issues that have hit the sector are expected to dissipate, leading to higher lithium prices and benefiting Arcadium Lithium plc (NYSE:ALTM). Additionally, the company stands out as one of the top 10 ADR stocks to buy according to hedge funds, having emerged as a potential acquisition target.
Arcadium Lithium plc (NYSE:ALTM) has emerged as a potential acquisition target for Rio Tinto amid consolidation in the industry. Companies are increasingly looking for ways to bolster their lithium reserves amid the E.V. revolution, fuelling a wave of M.A. in the sector.
The average price target on Arcadium Lithium plc (NYSE:ALTM) stock is $4.59, potentially implying a 71.27% upside. Additionally, 19 hedge funds tracked by Insider Monkey held stakes in the company as of the end of the second quarter.
FPA Queens Road Small Cap Value Fund stated the following regarding Arcadium Lithium plc (NYSE:ALTM) in its Q2 2024 investor letter:
“Arcadium is an unusual investment for us. We normally avoid the commodity and materials sectors, and have kept our position in Arcadium small. But we believe Arcadium has a unique position in an industry with a strong long-term outlook. The company has low-cost production assets, is virtually debt-free, and has considerable capacity additions planned near-term.”
7. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 20
Stock Upside Potential: 67.61%
According to Edge Funds, NIO Inc. (NYSE:NIO) is arguably one of the top 10 ADR stocks for investors who are eyeing exposure to China’s electric vehicle industry. The automaker offers a comprehensive ecosystem that goes beyond offering cars.
June saw a new monthly peak with 21,209 cars delivered, setting a monthly record. This trend continued into July, with deliveries once again surpassing 20,000 vehicles. NIO Inc. (NYSE:NIO) shipped out 20,498 cars, an increase of just 0.18% from the previous year’s total of 20,462 cars. July became the third straight month with deliveries exceeding 20,000 vehicles.
Its competitive edge stems from its array of electric SUVs, including ES6 and ES8 models. NIO Inc. (NYSE:NIO) also offers an indicative battery swapping technology. Nio achieved enhanced Adjusted EBITDA (1) figures both in a step-by-step quarterly manner and over the half-year period, in contrast to the previous year, despite ongoing challenges with the prices of rare earth elements.
Consequently, NIO Inc. (NYSE:NIO) is raising its guidance for the fiscal year 2024, aiming for Adjusted EBITDA) figures between $45 million and $50 million, marking a 20% to 35% increase from the previous year. This reflects the robustness of its downstream operations. Additionally, the firm is reaping the benefits of a strong quarter for its Rare Metals division, and the positive outcomes in Magnequench and the automotive catalysts sector are particularly encouraging.
While NIO Inc. (NYSE:NIO) has been under pressure, analysts remain optimistic about its long-term prospects, with an average price target of $6.52, implying a 67.61% upside potential from current levels. On the other hand, 20 hedge funds tracked by Insider Monkey held stakes in the company.
6. H World Group (NASDAQ:HTHT)
Number of Hedge Fund Holders: 24
Stock Upside Potential: 63.70%
H World Group (NASDAQ:HTHT) is one of the top ADR stocks and a key player in China’s hospitality industry. The company develops leased and owned franchised hotels and generates management fees and franchise fees. It operates through three primary strategies: leasing and owning properties and franchising and managing hotels.
The diversified strategy helps H World Group (NASDAQ:HTHT) sustain a strong hospitality sector foothold while offering substantial growth opportunities through efficient risk management and financial investment.
By blending these strategies, the company can maximize income sources, boost brand awareness, and expand its market share with a lower upfront cost than conventional hotel ownership. As of the end of the first quarter, it managed a network of 9,817 hotels, encompassing 955,657 rooms across 18 nations.
H World Group (NASDAQ:HTHT) remains at the forefront of focusing on its customers and constantly enhancing the excellence of its offerings. During the first six months of 2024, the company saw its earnings climb to $1.6 billion, marking a 14.1% rise from the same period in 2023. Earnings were up 14.3% to RMB 9.1 billion.
Analysts on Wall Street rate H World Group (NASDAQ:HTHT) as a Buy with an average price target of $47.67, suggesting a 63.70% upside potential from current levels. Additionally, the stock rewards investors with a 2.19% dividend yield. The number of hedge funds holding stakes in the company dropped to 24 in Q2 2024 from 34 as of the end of Q1 2024.
5. Immunocore Holdings plc (NASDAQ:IMCR)
Number of Hedge Fund Holders: 24
Stock Upside Potential: 123.76%
Immunocore Holdings plc (NASDAQ:IMCR) is a biotech firm at the forefront of developing and providing groundbreaking immunomodulation drugs to significantly enhance results for individuals suffering from cancer, infectious illnesses, and autoimmune conditions.
The company’s lead product is KIMMTRAK, which has received approval in 38 nations and has been introduced in 19 countries. It targets patients with non-respectable or metastatic uveal melanoma (mUM). KIMMTRAK remains the benchmark treatment in most regions in which it has entered.
In Q2 2024, Immunocore Holdings plc (NASDAQ:IMCR) generated $75 million in revenues from its lead product, representing a 32% year-over-year increase. The increase was driven by increased penetration in community settings and duration of treatment. Total revenues in the quarter came in at $75.3 million compared to $56.9 million in the same quarter last year.
Analysts on Wall Street remain upbeat about Immunocore Holdings plc (NASDAQ:IMCR) ’s growth metrics driven by growth in its lead products. Consequently, they maintain a buy rating with an average price target of $80.62, implying a 123.76% upside potential from current levels.
According to Insider Monkey, 24 out of 912 hedge funds tracked held stakes in Immunocore Holdings plc (NASDAQ:IMCR) as of the end of Q2 2024. Julian Baker And Felix Baker’s Baker Bros. Advisors is the most significant shareholder of the company, with shares worth $51.35 million.
4. Mobileye Global (NYSE:MBLY)
Number of Hedge Fund Holders: 28
Stock Upside Potential: 55.73%
Mobileye Global (NYSE:MBLY) is one of the companies spearheading the autonomous car revolution. Headquartered in Israel and operating as an Intel Overseas Funding Corporation subsidiary, it develops and deploys advanced driver assistance systems (ADAS) and autonomous driving technologies and solutions worldwide.
Mobileye Global (NYSE:MBLY) stands out as one of the top 10 ADR stocks to buy according to hedge funds, as it generates a good chunk of its revenues from its advanced driver assistance system, developed more than ten years ago.
The self-driving firm has shipped its clients the initial batch of hardware and software for its latest EyeQ6 Lite system-on-chip. This EyeQ6 Lite system-on-chip is designed to “fuel sophisticated driver-assistance technologies across various models and is set to be introduced this year. In 2022, Mobileye Global (NYSE:MBLY) unveiled the EyeQ6 series, with the EyeQ6L model expected to be integrated into 46 million vehicles over the next few years. The EyeQ6 High-end system-on-chip is scheduled to go into production in the first quarter of 2025, the firm mentioned.
Mobileye Global (NYSE:MBLY) delivered $439 million in revenues in its second quarter, representing an 84% increase from the first quarter. The growth can be attributed to a 110% increase in the number of systems shipped compared to the first quarter. Given continued SuperVisionTM / ChauffeurTM progress, the company remains optimistic about the medium-term growth environment.
Based on 17 Wall Street analysts, Mobileye Global (NYSE:MBLY) is rated as a Buy with an average price target of $22.27, implying a 55.73% upside potential from current levels.
According to the Insider Monkey database, 28 hedge funds held stakes in the company as of the end of the second quarter.
3. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Number of Hedge Fund Holders: 44
Stock Upside Potential: 55.63%
Headquartered in Dublin, Ireland, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is one of the top 10 ADR stocks to buy according to hedge funds for exposure in the healthcare sector. The company identifies, develops, and commercializes pharmaceutical products for unmet medical needs.
In 2021, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) expanded its footprint into cannabis-based drugs with the acquisition of G.W. Pharmaceuticals for $7.2 billion. Its lead product is Epidiolex, used to treat seizures associated with Lennox-Gastaut and Dravet syndromes. This drug utilizes cannabidiol or CBD.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has been in a robust growth phase, with its revenues increasing steadily from $2.36 billion in 2020 to $3.83 billion by 2023. It has also transitioned from a financial deficit to a profit-making status in the previous year.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) hit a significant milestone in the second quarter, with revenues rising above the $1 billion mark to $1.02 billion. The milestone was driven by strong execution and increased demand for key growth drivers, Xywav, Epidiolex, and Rylaze. It also bounced back to profitability with a net income of $168.6 million or $2.49 a share.
With the company’s oncology revenues growing by 10% yearly, it is arguably one of the ADR stocks to watch in the healthcare sector. The stock trades at a discount with a price-to-earnings multiple of 5 compared to an average P/E of 34 for the healthcare sector.
Based on 16 Wall Street analysts, the average price target on Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is $172.73, implying a 55.63% upside potential from current levels.
The stock of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) was held by 44 hedge funds at the end of Q2 2024 in the Insider Monkey database, with the most significant stake of 1.43 million shares held by Ryan Wilder’s Vestal Point Capital, valued at over $160.10 million.
2. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 48
Stock Upside Potential: 61.90%
Baidu, Inc. (NASDAQ:BIDU) is one of the top 10 ADR stocks to buy, according to hedge funds, owing to the role it plays in China’s internet landscape. The company offers internet search services and generates a significant chunk of its revenues through advertising.
While Baidu, Inc. (NASDAQ:BIDU) is best known for its search business, it is also diversifying its footprint as it seeks to become an artificial intelligence first business. It’s already working on its large language model LLM ERNIE that is to leverage in its autonomous driving and robotaxis segments. The platform already handles 600 million requests daily.
AI is expected to strengthen Baidu, Inc. (NASDAQ:BIDU)’s competitive edge while opening up new growth opportunities, especially on the cloud. For starters, the company is staring at opportunities around autonomous driving technology, with the segment expected to grow by 32% over the next six years.
Baidu, Inc. (NASDAQ:BIDU) delivered solid second-quarter results showing modest growth despite grappling with a slowing Chinese economy. Revenues in the quarter were flat at $4.67 billion, driven by 10% growth in non-online marketing revenue, mainly from A.I. Cloud.
Baidu, Inc. (NASDAQ:BIDU) is trading at an attractive valuation, with a forward P.E. ratio of 7.70, which is a 40% discount compared to the industry average of 12.91. Additionally, analysts rate the stock as Buy with an average price target of $138.89, implying a 61.90% upside potential from current levels.
Likewise, 48 out of 920 hedge funds tracked by Insider Monkey held stakes in the company as of the end of the first quarter. As of June 30, Citadel Investment Group is the top investor in the company and has a stake worth $151.24 million.
Here is what Ariel Global Fund said about Baidu, Inc. (NASDAQ:BIDU) in its first quarter 2024 investor letter:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
1. Merus NV (NASDAQ:MRUS)
Number of Hedge Fund Holders: 54
Stock Upside Potential: 65.89%
Based in the Netherlands, Merus NV (NASDAQ:MRUS) is a company focused on the research and development of antibody-based cancer treatments; it is working on a range of antibody therapies, with its Zenocutuzumab (MCLA-128) being a key candidate in phase 2 clinical trials aimed at treating individuals with metastatic breast cancer and prostate cancer that has become resistant to hormone therapy.
According to hedge funds, Merus NV (NASDAQ:MRUS)’s competitive edge as one of the top 10 ADR stocks to buy stems from its strategic collaboration that strengthens its edge in the industry. It is currently working with Incite Corporation on researching, discovering, and developing bispecific antibodies. It is also working with Eli Lilly and Company (Lilly) to develop up to three CD3-engaging T-cell re-directing bispecific antibody therapies.
Merus NV (NASDAQ:MRUS) also received a new equity investment of $25 million from Gilead Sciences to discover novel antibody-based trispecific T-cell engagers using the patented Triclonics® platform. The company boasts about $846.4 million in cash to finance its R&D until 2028.
Revenue from working with other companies for the quarter ending June 30, 2024, fell by $3.2 million when compared to the same period a year earlier, mainly due to a drop in income from reimbursements of $1.5 million and the reduction of deferred revenue by $1.7 million.
Currently, Merus NV (NASDAQ:MRUS) is rated as Buy with an average price target of $88.50, implying a 65.89% upside potential from current levels; according to Insider Monkey, 54 out of 912 hedge funds tracked held stakes in the company as of the end of the second quarter. Egen Atkinson And Michael Kramarz’s Commodore Capital, which had a $189.34 million stake in Merus N.V. (NASDAQ:MRUS) at the end of June, was the company’s biggest shareholder.
The top 10 ADR stocks to buy according to hedge funds offer some of the best opportunities for diversifying an investment portfolio beyond US companies. However, given that the artificial intelligence arms race is just but starting, there are under-the-radar AI stocks trading at highly discounted valuations that hold greater promise for anyone looking to diversify their portfolio. If you are looking for an AI stock that is more promising than the top activist investment plays, check out our report about the cheapest AI stock.
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