Sometimes investors need to open their minds and expand their geographic horizons to seek out compelling values. For one billionaire a minimum of, this meant loading up on some well-known Chinese technology firms.
The billionaire in query is David Tepper, who founded and currently manages the Appaloosa Management hedge fund. He also owns the Carolina Panthers and the Charlotte Rugby Football Club.
Tepper recently trimmed his fund’s holdings in certain American technology stocks while increasing its exposure to China-based tech businesses. After all, this strategy isn’t limited to the ultra-wealthy, so you’ll be able to follow Tepper’s trades, albeit not at the identical scale. Let’s see what notable moves Tepper and Appaloosa made in the primary quarter of 2024.
Less Mag-7, more China
In line with Bloomberg, Tepper reduced Appaloosa’s holdings in Magnificent Seven stocks, including Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META) and NVIDIA (NASDAQ:NVDA). This Mag-7 trimming is sort of blasphemous during a time when mega-cap technology names dominate the financial-media headlines.
Before anyone accuses Tepper of being unpatriotic, just consider what he’s doing as a rebalancing strategy based on valuations. The 4 aforementioned Mag-7 corporations have GAAP trailing 12-month price-to-earnings (P/E) ratios that value investors might object to:
- Amazon: 51.83 times earnings
- Microsoft: 36.41 times earnings
- Meta Platforms: 27.2 times earnings
- NVIDIA: 77.52 times earnings
Meta Platforms is probably the most favorable of that group, but META stock also jumped from $100 to $500 over the past 12 months and a half. Hence, it’s comprehensible if Tepper engaged in some profit-taking with this particular stock.
As Tepper backed away from Mag-7 stocks in the primary quarter, he moved toward certain China-based technology names. This may not look like an amazing value-investment strategy for the reason that MSCI China Index (MSCI) has rallied sharply since January.
Nonetheless, Bloomberg observed that the MSCI China Index trades at “lower than half of the valuation” of the S&P 500 (SPX). Thus, Chinese stocks could also be relatively cheaper — even in the event that they’re not necessarily low cost.
Drilling all the way down to the specifics, Tepper greater than doubled Appaloosa Management’s position in Alibaba (NYSE:BABA) stock. That’s interesting as Alibaba is essentially the Chinese counterpart to America’s Amazon, and as I discussed earlier, Tepper reduced his share position in Amazon.
Alibaba’s P/E ratio of 20.46 suggests that the corporate is less richly valued than Amazon by a large margin. Moreover, Alibaba managed to grow its revenue by 7% 12 months over 12 months in the primary quarter despite China’s difficult economy.
Alibaba Chief Financial Officer Toby Xu also emphasized the corporate’s commitment to returning value to the corporate’s shareholders.
“During fiscal 12 months 2024, we repurchased US$12.5 billion of shares, and our board of directors has approved a US$4 billion dividend for fiscal 12 months 2024,” Xu reported.”
Achieving China exposure through stocks and funds
Together with Alibaba stock, Appaloosa Management increased its positions in Baidu (NASDAQ:BIDU) stock and PDD (NASDAQ:PDD) stock. Furthermore, the hedge fund purchased JD.com (NASDAQ:JD) stock and two China-focused exchange-traded funds (ETFs), which I’ll discuss in a moment.
Here’s a fast rundown of those corporations’ P/E ratios:
- Baidu: 14.76 times earnings
- PDD: 25.22 times earnings
- JD.com: 16.08 times earnings
Keep in mind that every one of those P/E ratios can have been substantially lower when Appaloosa bought the stocks throughout the first quarter. Nonetheless, there still doesn’t appear to be anything over-valued here.
Given its low valuation, Baidu stock often is the most intriguing pick of the bunch. The corporate’s first-quarter 2024 revenue grew barely to 31.513 million RMB, versus 31.144 million RMB within the year-earlier quarter.
For years, Baidu was effectively China’s equivalent of Alphabet’s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google. Nonetheless, Baidu presents itself today as a “leading” artificial intelligence (AI) company “with [a] strong Web foundation.”
In other words, AI mania isn’t limited to the U.S. markets. As for PDD and JD.com, they’re each profitable Chinese e-commerce firms that aren’t excessively valued in the mean time.
All in all, Tepper may be justified in pivoting toward China-based technology names in 2024. Then again, in case you don’t wish to be a stock picker, then take a take a look at the 2 funds that Appaloosa Management added.
Those funds are the iShares China Large-Cap ETF (NYSEARCA:FXI) and the KraneShares CSI China Web ETF (NYSEARCA:KWEB). Like Tepper, you’ll be able to add those two ETFs to your portfolio together with individual Chinese stocks for added leverage. Then if China’s economic recovery gains traction, you simply might achieve magnificent returns from these non-Magnificent-Seven picks.
Disclaimer: All investments involve risk. By no means should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.