PDD Holdings Inc. (PDD): Best Chinese Stock to Buy, According to Wall Street Analysts?

We recently made a list 10 Best Chinese Stocks to Buy Now. In this article, we take a look at how PDD Holdings Inc. (NASDAQ:PDD) compares to other Chinese stocks.

Almost every major stock market is up this year on improved investor sentiment. The exception is Chinese stock markets, which have continued to underperform, hovering near zero valuations since the COVID lockdowns of three years ago.

Chinese stocks have fallen by about $6 trillion in value over the past three years. Global index compiler MSCI has already announced plans to remove up to 60 Chinese stocks from its benchmarks as it responds to poor performance in recent years. The cuts will signal a decline in demand for some of the country’s stocks in foreign investors’ portfolios. Amid the cuts, the index will still hold some of the best Chinese stocks to buy now.

ALSO READ: 10 Best Oil Services Stocks to Buy Now and 7 Best Debt-Free Stocks to Buy Now.

The weak results come amid growing concerns about China’s economy, which continues to cause concern in the investment community. China’s economy has consistently outperformed the U.S. economy, growing 123% between 2012 and 2022, compared with 58% for the U.S.

Still, the Chinese economy has been struggling with a number of problems for several years, including a recession in the real estate sector, deflation, high debt levels and a shift in ideological policies that are driving foreign companies away from the economy.

While the economy grew by 5.2% last year, significantly more than the U.S.’s 2.5%, it was the slowest pace since 1990, excluding the pandemic. While economists had expected the economy to slow even more in 2024, with growth averaging 4.5%, it has begun to show signs of recovery. China’s economy grew by 5.3% in the first quarter and 4.7% in the second.

Still, the 4.7% increase in the second quarter, while reasonable, is well below the country’s double-digit growth rates in recent decades, a major cause for concern in stock markets. On the other hand, slowing economic growth is not the only headwind that is scaring investors away from the Chinese economy.

The deteriorating US-China relationship has always shaken investor sentiment. While the US has hit Chinese companies with trade tariffs and restricted access to some key technologies, China has also responded with its fair share of tariffs. The hike in tariffs on Chinese electric vehicles from 25% to 100% and the imposition of trade tariffs on $18 billion worth of imports underscore the steadily deteriorating relationship between the two economic powerhouses.

Amid a worsening macroeconomic backdrop, Chinese stocks have begun to show signs of recovery in the second half of the year. Some promising sectors include the fixed asset investment sector, which is being driven by faster investment in manufacturing and infrastructure. Additionally, industrial production and services are also on the rise, while hosting some of the best Chinese stocks to buy.

In July, global hedge funds added holdings in some of the best Chinese stocks to buy now as most took advantage of their depressed valuations following sharp pullbacks. Nevertheless, hedge fund holdings remain near five-year lows.

In addition, analysts at BCA Research believe Chinese stocks could protect fund managers from deep losses as global risk assets face new threats. The firm has already raised Chinese onshore stocks from neutral to overweight.

“We expect Chinese stocks to fall by as much or as much as their global and EM peers in a bear market,” analysts including chief China strategist Arthur Budaghyan said in a report. Potential market support from Chinese sovereign wealth funds could cushion potential losses, he added.

With China’s economy and stock market sentiment improving, now may be the best time to keep a close eye on the best Chinese stocks to buy that are likely to outperform as the year ends.

Our methodology

To compile a list of the 10 best Chinese stocks to buy now, we reviewed the top 50 U.S.-listed companies in the iShares MSCI China ETF. Analysts believe these companies have significant growth potential. After obtaining a consolidated list, we ranked the top Chinese stocks in ascending order of growth potential, as of Aug. 17.

At Insider Monkey, we’re fascinated by the stocks that hedge funds invest in. The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (more details here).

PDD Holdings Inc. (NASDAQ:PDD)

Hedge funds holding shares: 86

Shares growth potential: 66.94%

PDD Holdings Inc. (NASDAQ:PDD) is a Chinese internet giant that owns and operates a portfolio of businesses. Its e-commerce platform offers products in various categories, including clothing, footwear, bags, agricultural products, and baby care products.

PDD Holdings Inc. (NASDAQ:PDD) is one of the best Chinese stocks to buy as the company makes solid inroads into e-commerce through its Temu and Pinduoduo brands. The company’s expansion and accomplishments have made PDD a significant player in the online retail sector, competing with top brands like Alibaba and JD. Most importantly, this significant increase in market presence has also brought solid financial results.

PDD Holdings Inc. (NASDAQ:PDD) has been growing its earnings at a pace that outpaces nearly every publicly traded online retailer. Wall Street investors expect this rapid expansion to continue, forecasting earnings per share (EPS) growth of about 97% in the coming quarter and 85% for the full year of 2024.

The expected growth should be driven by Temu, an online marketplace currently available in China and the U.S. The company has delivered better-than-expected earnings per share in the past four quarters, underpinning growth in its core business.

PDD Holdings Inc. (NASDAQ:PDD) maintains an average price target of $218.36 on Wall Street, implying a 66.94% upside potential. Similarly, 86 hedge funds out of 920 tracked by Insider Monkey held shares in the company at the end of Q2 2024. As of June 30, GQG Partners is the largest investor in the company with a stake worth $1.44 billion.

Here’s what Baron Emerging Markets Fund wrote about PDD Holdings Inc. (NASDAQ:PDD) in its fourth-quarter 2023 investor letter:

“We have expanded our digitalization theme by building a presence in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has grown to become the second largest e-commerce player in China, capturing approximately 20% market share. We believe PDD’s competitive advantage lies in its collaborative purchasing model, which facilitates bulk purchasing through direct partnerships with manufacturers, thereby eliminating middlemen (e.g. distributors and agents) and reducing costs. Key factors driving the company’s meteoric rise include rising consumer demand for affordable products in China amidst the economic slowdown, small sellers seeking alternatives to Alibaba, and improved management execution. PDD’s revenue growth is outpacing gross value growth due to rising collection rates as sellers aggressively compete for consumer traffic on the platform. We believe PDD should continue to gain market share given its dominance in the value-for-money segment, growing offering of affordable branded products, and strong operational efficiency.” We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps in the world. By leveraging excess Chinese manufacturing capacity, Temu has a strong negotiating position with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, combined with achieving a variable break-even point in the large US market, demonstrate management’s ability and commitment to sustainable growth. We expect PDD to at least double its earnings and free cash flow over the next three years, with the potential for further capitalization appreciation thereafter.”

Total PDD takes 3rd place on our list of the best Chinese stocks to buy. While we recognize PDD’s potential as an investment, our belief is based on the belief that AI stocks offer a better chance of achieving higher returns in a shorter period of time. If you’re looking for AI stocks that are more promising than PDD, check out our report on cheapest AI action.

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Disclosure: None. This article was originally published on Insider Monkey.