Billionaire investor David Tepper just said to buy “everything” from China. Here are his top 3 positions.

In late 2010, billionaire investor David Tepper made a big splash on CNBC. He predicted that the zero interest rate environment and quantitative easing policies of the Federal Reserve at the time would stimulate almost all US investment. S&P 500 the index would be 45% higher over the next 2-1/2 years in a run now called the “Tepper Rally.”

Yesterday, Tepper made a similar call on CNBC, though this time he was talking about Chinese stocks, after the Chinese government recently issued extensive stimulus measures and began cutting interest rates. “Everything,” Tepper said when asked what Chinese stocks to buy. “Everything … ETFs, I’d do futures, everything.”

It’s a big call, but Tepper and his fund’s track record of 28% annualized returns speaks for itself. And Tepper made a lot of money with a simple strategy: “Don’t fight the Fed.” In this case, it would be the Chinese government and the central bank. Here are Tepper’s three largest Chinese stock positions.

Alibaba: 12% of the portfolio

The e-commerce giant Alibaba (GRANDMA 6.24%) is the largest position in Tepper’s Appaloosa Holdings. The position is worth about 12% of the nearly $6.2 billion portfolio and was valued at $756 million at the end of the second quarter of 2024.

Alibaba is considered Amazon of China, which makes sense given that Amazon is Appaloosa’s second largest position. Alibaba runs several massive businesses, including the world’s largest e-commerce retail business based on gross merchandise value. It also operates the world’s fourth-largest cloud business and the largest infrastructure-as-a-service provider in Asia Pacific. Additionally, like most big tech stocks, Alibaba has recently made a big push into artificial intelligence (AI).

In early 2023, Alibaba announced plans to split the company into six separate businesses, each with its own CEO and board and the ability to raise capital, potentially leading to multiple initial public offerings (IPOs). Analysts at the time seemed to like the idea because it would allow the company to realize more of its potential on a sum-of-the-parts valuation and reduce regulatory risk.

But earlier this year, the company shelved plans for two public offerings, citing difficult market conditions for IPOs. Still, you have a company with a clear moat and strong growth prospects trading at 12 times forward earnings. In comparison, Amazon trades at 40 times forward earnings. If the Chinese stimulus can wake up consumer demand, Alibaba is a clear beneficiary.

PDD Holdings: 4% of the portfolio

Tepper seems to have a thing for e-commerce, as Appaloosa’s next Chinese position is another multinational trading company called PDD Holdings (PDD 8.03%). PDD has several businesses, including online platform Pinduoduo, which is known for its wide range of low-priced product offerings. The platform has a “team buy” concept where consumers can invite others to group deals for discounted prices.

Other companies owned by PDD include next-day grocery delivery service Duo Duo and growing US brand Temu, another online retailer known for its low prices. PDD trades at just 11.5 times forward earnings and has seen earnings double over the past year. This is part of Tepper’s thesis that you can buy Chinese stocks trading at cheap multiples of earnings today that can generate double-digit growth.

Diluted PDD EPS data (quarterly) by YCharts

Baidu: 2.3% of the portfolio

Given Tepper and Appaloosa’s focus on technology and chip stocks, Baidu (BIDU 4.74%) it’s a logical company to be in the mix. If there is US compensation for Baidu, there probably would be Alphabet. Baidu is the dominant search engine in China. The company is also a major player in the artificial intelligence space.

In 2023, Baidu launched its ChatGPT-like assistant known as Ernie. Baidu’s developer network, PaddlePaddle, has 10.7 million users who have created 860,000 different designs. The company can also design and manufacture its own chips.

Baidu’s market cap of about $37.5 billion pales in comparison to Alphabet’s $2 trillion-plus. Now, the Chinese economy is in a very different place than the US, and has been hit hard by deflationary pressure, a housing slump and weak consumer demand.

Chinese AI companies may also encounter obstacles with government AI rules and laws. But given the size of China’s economy, there is tremendous potential. Baidu has seen good earnings growth over the past two years, while its price-to-earnings multiple has dipped below 14.