2 Bargain Stocks Billionaires Are Buying

John Ballard, The Motley Fool

Sun, Feb 2, 2025, 8:30 AM 4 min read

Combing through the holdings of billionaire investors can be a great way for retail investors to find great stocks to buy. Two of the more notable investors one could choose to follow are Howard Marks of Oaktree Capital Management and David Tepper of Appaloosa Management. During one 25-year stretch of his career, Marks earned annualized returns of 23%, while over a 30-year run, Tepper earned annualized returns of 28%.

A peek at their holdings in 2024's third quarter reveals that both investors have been finding value in China's retail sector. Here are two stocks that are trading at cheap price-to-earnings ratios now, but that could soar over the next few years.

1. Alibaba

Alibaba (NYSE: BABA) has dominant positions in China's e-commerce and cloud computing market, but the durability of its business is being overshadowed by the country's economic weakness. Lower sales growth sent the stock tumbling over the past few years, and now it trades at a modest price-to-earnings multiple of 18. Howard Marks' Oaktree Capital bought more of the stock in the third quarter.

Weak consumer spending is forcing the biggest retailers in China to be more competitive, but this should play to Alibaba's strengths in the long run. As that country's e-commerce leader, it has a large customer base that provides it with valuable data it can use to offer personalized shopping experiences and drive more sales. It has tremendous scale, with $134 billion in trailing-12-month revenue and $12 billion in profit.

Alibaba generates most of its revenue from services it offers merchants. It has used its profitable e-commerce business to expand into other businesses like cloud computing services. The cloud unit is seeing triple-digit percentage growth for artificial intelligence (AI) services. This creates synergies with its online retail business. For example, Alibaba can use AI for product recommendations, price adjustments, and automation in delivery facilities.

The e-commerce giant is also having success expanding its business outside of China. International sales grew 29% year over year in its fiscal 2025 second quarter, which ended in September.

The consensus analyst estimate is that the company's earnings will grow at an annualized rate of 18% in the coming years. Assuming that estimate proves accurate, investors could double their money within five years. Considering Alibaba's dominant position in burgeoning markets like e-commerce and cloud computing, the stock appears significantly undervalued.

2. PDD Holdings

PDD Holdings (NASDAQ: PDD) is emerging as a major player in China's e-commerce market. The company is better known by the name of its Pinduoduo social e-commerce platform, which allows multiple shoppers to team up on purchases to get discounts on items. It also operates the Temu marketplace, which has had a lot of success expanding internationally by selling highly discounted items across many categories.

Though the company's revenue grew 44% year over year in the third quarter, the stock trades at just 8.6 times estimated 2025 earnings at the time of this writing. Both Howard Marks and David Tepper were buying shares in the third quarter.

PDD Holdings has a profitable business model that's based on charging fees for marketing and transactions. In Q3, its adjusted net profit totaled $3.9 billion on $14 billion of revenue.

The way it leverages social media networks to bring buyers together into pools has proven to be a clever growth strategy, allowing it to keep its capital commitments low and generate healthy margins. As more buyers shop on Pinduoduo, the marketplace attracts more merchants, which further expands the selection of items being offered at competitive prices, creating a virtuous cycle of growth.

One reason PDD has been successful in competing against larger e-commerce companies like Alibaba is its strategic focus on serving smaller cities in China. PDD has brought more products to these customers, including home appliances and fresh produce. The overall strategy has proven effective, and PDD has gained share in China's $3 trillion e-commerce market.

Both Alibaba and PDD trade at low valuations largely because of macroeconomic uncertainties following the pandemic, but that's why investors could profit handsomely down the road. The economy will always ebb and flow, but investors who focus on buying industry leaders at discounted valuations when business conditions are weak can set themselves up for outstanding long-term returns.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

2 Bargain Stocks Billionaires Are Buying was originally published by The Motley Fool

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