Zacks Investment Ideas feature highlights: KWEB, PDD Holdings and JD.com

Zacks Equity Research
·5-min read

For Immediate Release  

 Chicago, IL – April 30, 2024 – Today, Zacks Investment Ideas feature highlights the Chinese Technology Sector ETF KWEB, PDD Holdings PDD and JD.com JD.

Chinese Equities Are Back: 2 Top-Ranked Stocks to Ride the Trend

Over the last few weeks, the Chinese Technology Sector ETF has been showing some very bullish price action. After breaking out from the descending wedge at $25, the ETF followed through last week with a +13% rally last week.

This sector ETF, which is filled with Chinese technology stocks, is now building significant upward momentum, and it could be starting a major bull run.

I would be remiss to exclude the usual disclaimer of investing in Chinese equities, as they do carry additional risk, but the stocks I am going to share here offer such compelling risk/reward opportunities I couldn’t help but present them.

Based on the top Zacks Ranks, deeply discounted valuations, huge EPS growth forecasts and technical setups, PDD Holdings and JD.com make for worthy stock investment consideration.

PDD Holdings

PDD Holdings also known as Pinduoduo, is a Chinese e-commerce platform that specializes in group buying deals. Founded in 2015 by Colin Huang, PDD quickly gained popularity by offering discounted products through team purchases.

It utilizes a social commerce model, encouraging users to share deals with friends and family to unlock additional discounts. PDD's platform is particularly popular in smaller Chinese cities and rural areas, where it has captured a significant market share. The company's business model focuses on leveraging social networks and innovative marketing strategies to drive sales and engagement.

Revenue at PDD Holdings has exploded in the last few years, growing annual sales from $2 billion in 2018 to $35 billion in the last year. This huge pace of growth is expected to continue with sales expected to climb 50% this year and 35% next year.

Pinduoduo has also seen some hefty upgrades to its earnings estimates, giving it a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings were revised higher by 27% over the last two months and FY24 have increased by 18% over the same period.

PDD Holdings is currently trading at a significant discount. Its one year forward earnings multiple of 16.5x is well below the market average, and its two-year median of 25.6x.

But what makes this valuation appear especially cheap is PDD’s PEG Ratio which considers EPS growth. Over the next 3-5 years EPS are forecast to grow 49.3% annually, giving it a PEG ratio of just 0.3.

JD.com

JD.com, also known as Jingdong, is a major Chinese e-commerce company headquartered in Beijing. It's one of the two giants in China's B2C (business-to-consumer) online retail market, competing head-to-head with Alibaba.

The company operates both a direct sales model and a marketplace platform, connecting consumers with merchants across China and providing a wide range of products including electronics, apparel, and groceries.

Like PDD, JD also enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions. Analysts are also anticipating huge EPS growth, with 3–5-year forecasts of 43.8% annually.

JD.com today has a one year forward earnings multiple of 10.7x, well below the market average and massively below its five-year median of 46.6x. It also has a PEG Ratio of 0.22, a bargain based on the metric.

Another notable development in JD.com is the technical setup. The price action in JD stock has been forming a textbook bottoming pattern. You can identify multiple patterns here like a double bottom, inverse head and shoulders, cup and handle breakout, and a stage one breakout. But simply put, the stock has formed what looks like a large sideways consolidation and broken higher.

So long as the stock trades above the $29 breakout level, it should continue to rally.

Bottom Line

Although the wait for the return of Chinese tech stocks has been long and grueling, there seems to be potential that the bull run has begun.

One additional reason to consider diversifying into some Chinese equities is the growing uncertainty in the US equity market. Mixed signals from inflation and now shifting interest rate policy expectations are throwing a wrench in the bull market, and though it may very well pass in the next few months, adding some uncorrelated stocks may help in the case of a further selloff.

Finally, I should reiterate that investing in Chinese stocks comes with additional risk, as their standards and policies differ significantly from those in the US. However, if you are keen on getting exposure to the market, PDD and JD are worth diving into.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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JD.com, Inc. (JD) : Free Stock Analysis Report

KraneShares CSI China Internet ETF (KWEB): ETF Research Reports

PDD Holdings Inc. (PDD) : Free Stock Analysis Report

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