Growth stocks are one of the best tools to build wealth for retirement. These are the stocks of innovators and forward-looking companies that are investing in massive market opportunities that can deliver multibagger returns.
Investors can get great ideas about which growth stocks to buy by simply following what billionaire fund managers are buying. Thanks to 13Fs, investors can get a sneak peek at the holdings of some of the most successful investors in the world.
In the latest round of quarterly disclosures, billionaires were recently buying two growth stocks that appear to be undervalued based on their recent momentum and future opportunities.
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1. Uber Technologies
One growth stock that drew significant interest from billionaires was ride-hailing leader Uber Technologies (UBER -0.10%). David Tepper of Appaloosa Management more than doubled his fund's stake. Bill Ackman's Pershing Square made the boldest move, buying more than 30 million shares in the ride-sharing leader that were worth $2.2 billion at the end of the quarter.
Uber is seeing strong momentum in its core mobility (ride-hailing) and delivery services. In the first quarter, the company reported an 18% year-over-year increase in trips and gross bookings on a currency-neutral basis.
Uber is benefiting from features like Reserve, which is driving demand in suburban markets. Management said growth in these markets is higher than urban areas, as people in suburbs are relying on Uber more for everyday travel, even going out to dinner. More people relying on Uber for everyday trips places the company in a great position to benefit from autonomous ride-hailing services.
With 170 million monthly active platform consumers, Uber already has a large installed base of customers. This is attracting key partnerships with leading autonomous vehicle (AV) makers like Alphabet's Google's Waymo and WeRide in China that can leverage Uber's customer reach.
While it will take time for autonomous ride-hailing services to expand nationwide due to regulatory hurdles, Uber is in a great position to capitalize on this opportunity. Partnering with AV makers means Uber doesn't need to invest massive amounts of money in building its own fleet of AVs. It can profit from serving as a distribution platform.
Uber's large installed base of customers and alliances with AV companies places the business in a competitively strong position. This explains why Ackman and Tepper see great value in the stock. While the shares have surged to new highs recently and trade at a higher valuation than in the first quarter, its forward price-to-earnings multiple of 25 still looks attractive. That should lead to market-beating returns, with analysts projecting long-term earnings growth of 23% on an annualized basis.
2. PDD Holdings
Another growth stock trading at an attractive valuation that billionaires bought last quarter was PDD Holdings (PDD -1.24%), the parent company behind Pinduoduo in China and Temu. Chase Coleman of Tiger Global Management increased his firm's stake by 67% in the first quarter.
Pinduoduo is playing a vital role in helping farmers in China reach more consumers, who are attracted to the company's direct-to-consumer model that allows them to get great deals. Meanwhile, Temu, which was founded in 2022 in Boston, has benefited from a similar discount model to become one of the most visited e-commerce sites globally.
The company's growth has been impressive. From fiscal 2021 through fiscal 2024, revenue exploded from $15 billion to $54 billion. Because PDD is a technology-oriented company that generates revenue from fees on transactions and marketing services, it is converting a high percentage (28%) of its revenue into profits.
One reason PDD could be successful over the long term is that it offers a unique shopping experience. Customers can form social groups with their friends to get volume discounts on merchandise. This encourages repeat purchase behavior, which has supported the company's growth.
Importantly, PDD's management team is focused on the long term. It is willing to sacrifice near-term profits to position the business for long-term growth. For example, the company recently lowered fees to reduce costs for merchants, while also investing to build logistics support in remote regions to extend free shipping offers to more consumers.
However, the company is not without risks. The e-commerce market is competitive, and leaders like Alibaba could compete more aggressively with PDD on selection and pricing to win back market share. There could also be near-term headwinds in China's economy over the tariff battle with the U.S., which could pressure consumer spending, negatively impacting customer traffic on the company's platforms.
Clearly, Chase Coleman has made the determination that the stock's discounted valuation more than accounts for these risks. The shares, indeed, look cheap, trading just under 10 times this year's earnings estimate. That's a fair appraisal for a no-growth business, but PDD's unique business strategy could lead to more growth over the long term that isn't reflected in the share price right now.
