We recently compiled a list of the 11 Best Undervalued Stocks to Invest in Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against the other undervalued stocks.
On March 5th, BBC reported that the US stock market had fallen after the tariffs sparked trade war fear. The recent imposition of tariffs by President Donald Trump on imports from Canada, Mexico, and China has sparked significant concerns about a potential trade war. The United States has imposed a 25% tariff on most imports from these countries, with Canadian energy products facing a 10% tariff. On the other hand, tariffs on Chinese imports have been increased from 10% to 20%. As a result, Prime Minister of Canada, Justin Trudeau announced immediate tariffs on $30 billion worth of US goods, with plans for additional tariffs on $125 billion in goods over the next three weeks. Moreover, China imposed tariffs ranging from 10% to 15% on various US agricultural imports, such as chicken, pork, and soybeans. The tariffs have raised fears of inflation and a broader trade conflict, leading to a decline in US and global stock markets. As a result, the S&P 500 experienced a significant drop, and European markets also closed lower.
Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.
While talking about how the Fed might react to the tariffs, Fisher mentioned that it is a little too early to guess. The Fed is bringing inflation down and we are getting closer to the 2% target, however, at the same time tariff increases the cost of doing business, which might slow down the economy and tickle up inflation. To conclude Fisher noted that tariffs won’t be digested quickly and will take time.
For this article, 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 of 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).
Why PDD Holdings Inc. (PDD) Surged On Friday?
A close-up of a customer using the company’s e-commerce platform whilst shopping online.
Forward P/E Ratio: 10.09
Earnings Growth This Year: 75.64%
Number of Hedge Fund Holders: 85
PDD Holdings Inc. (NASDAQ:PDD) is a multinational company that operates several businesses, primarily focusing on e-commerce. The company helps businesses and people join the digital economy, which means it assists in moving traditional businesses online. This helps local communities and small businesses by increasing their productivity and providing new opportunities. The company is known for two popular platforms including Pinduoduo and Temu.
The strategic edge of the company lies in its networking power and the web of networks it has established to handle sourcing, logistics, and fulfillment for its businesses. During the fiscal third quarter of 2024, PDD Holdings Inc. (NASDAQ:PDD) achieved a total revenue of $14.16 billion, reflecting a 44% increase year-over-year. Baron Funds in its Q3 2024 investor letter stated that the company has become China’s second-largest e-commerce company, capturing over 20% of the market share. The company uses algorithms to create a highly engaging platform, driving user and merchant growth in a virtuous cycle. This approach enhances user interaction and encourages repeat purchases.
Moreover, 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.
Overall PDD ranks 5th on our list of the best undervalued stocks to invest in now. 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 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.
