Many people follow billionaire hedge fund managers for investing inspiration – and it makes sense. After all, these investors have turned their own funds into billions. The hedge funds they operate typically have high minimum investment requirements that pose an insurmountable barrier to entry for the average retail investor. But these funds have a legal requirement to report their investment activities each quarter in a Securities and Exchange Commission (SEC) filing called a 13F, which anyone can access.
There are, however, some reservations about the approach of looking for stock picks in these reports. The first 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”. Traditional investors cannot imitate the behavior of a fund with billions of dollars accessible. Additionally, Forms 13F are only required to be filed 45 days after the end of the quarter they cover, so any information they transmit arrives with a significant time lag.
So while it wouldn’t make sense to try to use this data to copy a hedge fund, individual investors can still see what the pros are doing and decide whether or not some of these stocks are suitable for their own portfolio.
In the first quarter, billionaire David Tepper of Appaloosa Management opened a new position in JD.com (NASDAQ:JD) shares, purchasing 3,649,863 shares. The Chinese tech stock is down 72% from the high it hit in 2021, so it’s a bet on a recovery. Should you follow Tepper in this stock?
Stand out in a competitive industry
JD.com is a Chinese e-commerce giant competing with Ali Baba And PDDIt’s Pinduoduo. It operates in an extremely competitive market, and all these companies tout their low prices and logistical capabilities. JD.com’s revenue peaked in 2022, but has slowed since. Although macroeconomic and geopolitical factors affected its slowdown, its competitors grew much faster and investors were disappointed with JD.com’s performance.
JD.com has a large direct-to-consumer core segment and controls a massive share of China’s home appliances and electronics market, but it is actively focused on generating more business from its platforms. -technology and supply chain forms. The aim is to develop these activities to recruit new customers and claim an important place in the entire Chinese retail market. And like anything that evolves, it creates a larger network that improves. The company can reach more locations faster and more cost-effectively, leading to improved margins and profits.
Management’s forecast calls for business to improve in 2025 and JD.com’s revenue growth to outpace overall retail sales growth in China as the company produces strong results. The stock also pays a dividend that yields 2.6% at the current stock price.
Is this an attractive entry point for retail investors?
JD.com stock may have hit its lowest level earlier this year. Although it fell a few days after the release of first-quarter results last month, it has been on the rise since early March, which may indicate that investors are ready to try their luck again.
At the current price, JD.com stock is trading at a price/earnings ratio around 13 and an incredibly cheap price 1-year forward price/earnings ratio of 8. In the first quarter, both of those metrics were even lower, and Tepper and his team may have recognized that at those levels, it was too good a deal to pass up. As you can see from this chart, the stock price previously moved based on the company’s net profit. But as its net profit has recovered, the stock price has not increased. There is a lag, but the market should eventually catch up, which is why this stock may appear to be an opportunity.
But is this a suitable opportunity for retail investors? In fact, I think it’s an investment best left to the pros. Hedge fund managers are paid precisely to make riskier plays, and they have backup strategies (in other words, hedges) to increase their chances of overall success, no matter what happens to a stock. But investors who have a strong appetite for risk and well-diversified portfolios may want to open small positions in JD.com now.
Should you invest $1,000 in JD.com right now?
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool features and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaire David Tepper has just made a unique bet on this stock. Is it time to buy? was originally published by The Motley Fool
