Many people follow billionaire hedge fund managers for investing inspiration – and that makes sense. After all, those investors have converted their equity into billions. The hedge funds they operate typically have high minimum investment requirements, which pose an insurmountable barrier to entry for the average private investor. But these funds have a legal obligation to report their investment activities quarterly in a Securities and Exchange Commission (SEC) filing called 13F, which everyone has access to.
However, there are some caveats to the approach to finding stock picks in these reports. One is that many of these funds invest in hundreds or even thousands of stocks, using a combination of diversification and risk management strategies. After all, they are called “hedge funds.” Main Street investors cannot imitate the behavior of a fund with billions of accessible dollars. Furthermore, 13F forms are not required to be filed until 45 days after the end of the quarter they cover, so any information they convey comes with a significant delay.
So while there would be no point in trying to use that data to copy a hedge fund, individual investors can still see what the professionals are doing and decide whether or not some of these moves are appropriate for their own portfolios.
In the first quarter, billionaire David Tepper of Appaloosa Management opened a new position JD.com (NASDAQ: JD) shares, purchasing 3,649,863 shares. Chinese tech stocks are down 72% from their 2021 highs, so this is a bet on a recovery. Should you follow Tepper on this stock?
Distinguishing itself in a competitive sector
JD.com is a Chinese e-commerce giant that competes with Alibaba.com And PDD‘s Pinduoduo. It operates in a fiercely competitive market, and all these companies tout their low prices and their logistics capabilities. JD.com’s revenue peaked in 2022 but has slowed since then. While macroeconomic and geopolitical factors have influenced the slowdown, its rivals have grown much faster and investors have been disappointed with JD.com’s performance.
JD.com has a large direct-to-consumer core segment and controls a huge share of China’s home appliances and electronics market, but is actively focused on generating more revenue from its technology and supply chain platforms. The company is expanding these businesses to acquire new customers and stake a major claim on the overall Chinese retail market. And like anything that scales, it creates a wider web that improves itself. The company can reach more locations faster and with better cost efficiency, leading to better margins and profits.
Management guidance predicts that business will improve in 2025 and JD.com’s revenue growth will outpace overall retail sales growth in China as the company delivers robust bottom-line results. The stock also pays a dividend that yields 2.6% at the current share price.
Is this an attractive entry point for private investors?
JD.com stock may have bottomed out when it bottomed earlier this year. Although the stock has been sliding for a few days after last month’s Q1 earnings release, it has been on an upward swing since early March, which could indicate investors are willing to take another gamble. cart.
At its current price, JD.com stock trades at a price-to-earnings ratio of around 13 and an incredibly cheap one-year price-to-earnings ratio of 8. In the first quarter, both numbers were even lower: And Tepper and his team may have realized that at that level it was too good a deal to pass up. As you can see in this chart, the share price previously moved in line with the company’s net income. But now that net profit has recovered, the share price has not. There is a lag, but the market should catch up eventually, which is why this stock may look like an opportunity.
But is this a suitable opportunity for individual retail investors? Actually, I think this is an investment best left to the professionals. Hedge fund managers are paid precisely to play riskier, and they have backup strategies (in other words, hedges) to increase their chances of overall success no matter what happens to one stock. But investors who have a strong risk appetite and a well-diversified portfolio may want to open small positions in JD.com now.
Should you invest $1,000 in JD.com now?
Before purchasing shares on JD.com, consider the following:
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaire David Tepper just placed a one-time bet on this stock. Time to buy? was originally published by The Motley Fool
