We recently published a list of 12 Most Undervalued Large Cap Stocks to Buy Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against other most undervalued large cap stocks to buy now.

On March 4, David Katz, Chief Investment Officer at Matrix Asset Advisors, joined ‘The Exchange’ on CNBC to share his perspective on the current state of the bull market and what February’s mixed action and sector rotation might signal for the rest of the year. Katz acknowledged that while people might not want to hear it, the volatility seen in February is likely to persist throughout the year, with both upside and downside movements. He emphasized that this creates opportunities for investors but also necessitates caution. Katz highlighted several positive factors supporting the market, which included a strong economy and solid corporate performance. However, he expressed concerns about certain policies from the administration, such as tariffs, immigration, and the relationship with the Fed. While these issues have been largely ignored by the market so far, Katz warned that they could eventually lead to a 3-5% correction. Despite this, he remained optimistic about the economy’s ability to navigate these challenges and recommended buying into market dips rather than chasing rallies.

To support his sentiment, Katz pointed to companies that have already experienced significant corrections and are positioned to perform well regardless of broader market movements. He highlighted their strong fundamentals, attractive valuations (most trading at under 13-14 times earnings), and good outlooks. He also noted that last year’s market leaders have slowed significantly, while sectors that underperformed are beginning to show meaningful improvement, a trend he expects to continue. This sector rotation suggests that investors should be prepared to adapt their strategies as different sectors gain momentum throughout the year.

Methodology

We used the Finviz stock screener to compile a list of the top stocks trading between $10 billion and $200 billion. We then selected stocks with a forward P/E ratio under 15 and made a list of 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.

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 Price-to-Earnings Ratio as of March 4: 8.76

Number of Hedge Fund Holders: 85

PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group that operates a portfolio of e-commerce businesses. Specifically, it owns and operates Pinduoduo, which is a platform that offers a range of consumer products. It also owns and operates Temu, which is an online marketplace with a focus on facilitating the integration of businesses and consumers into the digital economy.

This company is supporting its merchants and building a strong platform ecosystem. It launched a $10 billion fee reduction program in Q3 2024, which aims to save money for over 10 million merchants through refunds and reduced fees. It introduced a high-quality merchant support program, which provides help with product development and marketing. During the harvest festival, it allocated $1 billion RMB in subsidies and $2 billion in online traffic to support agricultural merchants.

To expand reach, it eliminated transshipment fees for orders in Western China, which reduced delivery costs by ~70% for some products. This led to growth in orders from remote areas. The company’s total revenues increased by 44% year-over-year in Q3 2024. Revenues from transaction services were up 72%. PDD Holdings Inc. (NASDAQ:PDD) is adapting to changing consumer preferences, and emphasizes quality and personalized products.

Baron Global Advantage Fund is highly optimistic about PDD Holdings Inc. (NASDAQ:PDD) due to its unique business model, rapid growth, international expansion, and undervalued stock price as strong indicators of substantial long-term value. Here’s what it said in its Q3 2024 investor letter:

“During the third quarter we re-initiated a small investment in PDD Holdings Inc. (NASDAQ:PDD). We believe the company is truly unique in the global e-commerce landscape, with an innovative business model, and very strong growth prospects. Founded in 2015 as Pinduoduo, the company has grown into China’s second-largest e-commerce player, capturing over 20% market share. PDD’s Consumer-to-Manufacturer (C2M) model, which connects manufacturers directly to consumers eliminated intermediaries, allowing for ultra-low prices that attract price-sensitive consumers and small merchants. Its discovery-based, algorithm-driven shopping experience has created a highly engaging platform, driving user and merchant growth in a virtuous cycle. We expect PDD to continue gaining share in China given its dominance in the value-for-money segment, growing branded product offerings at affordable prices, and high operational efficiency. PDD’s network effects and cost advantage, supported by its lean structure and efficient C2M model, are set to grow as it scales, both domestically and internationally. Its cross-border e-commerce platform, Temu, launched in September 2022, has rapidly become one of the world’s fastest-growing apps. Leveraging China’s excess capacity and PDD’s supply-chain efficiency, Temu wields strong pricing power over Chinese suppliers and attracts overseas consumers with competitively priced products. While still in early stage, Temu has achieved 2% of the global ex-China e-commerce market and a variable breakeven in the U.S. market, underscoring PDD’s focus on sustainable growth. Despite its rapid growth and profitability, PDD trades at a double-digit free cash flow yield (despite losses from the early-stage international expansion through Temu), significantly below sector peers. While concerns over geopolitical tensions exist, we believe PDD’s growing competitive edge, strong cash flow, and disciplined management position it to create substantial long-term value for shareholders.”

Overall, PDD ranks 3rd on our list of most undervalued large cap stocks to buy now. While we acknowledge the growth potential of PDD as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires

Disclosure: None. This article is originally published at Insider Monkey.