A cheap internet stock you can invest in now

We recently compiled a list of the 7 cheap internet stocks to invest in now. In this article, we’ll take a look at where Tencent Music Entertainment Group (NYSE:TME) ​​stands compared to the other cheap internet stocks.

What is happening to China’s stock market?

The Chinese stock market has seen a strong rebound recently, driven by some aggressive measures by the government to revive the economy. China is the world’s second largest economy and a key player in the technology industry. This huge economy has faced a number of challenges in recent years in the form of a sharp downturn in the housing market and a lack of consumer confidence.

Government measures include interest rate cuts and liquidity injections into the market. On September 24, Reuters reported that China’s central bank cut reserve requirements by 50 basis points and also cut interest rates by 20 basis points to 1.5%. In addition, the bank also plans to issue special government bonds worth 2 trillion yuan.

These actions caused the CSI 300 index to trade higher. The index closed 4.5% higher following the announcement, while the Hong Kong index rose 3.6%. This step by the Chinese central bank is expected to have positive effects worldwide. Analysts in the US are already calling the news a “China boost”. While many analysts describe this upswing as short-lived, others are confident that this is positive sentiment and will benefit the market in the long term.

David Tepper, founder and president of Appaloosa Management and owner of the Carolina Panthers, recently joined CNBC for an interview to discuss the global impact of China’s stimulus package.

Comparing the Chinese and U.S. stock markets, Tepper pointed out that Chinese stocks are trading in single digits and earnings are expected to grow in double digits, at least for major stocks. On the other hand, the United States S&P average is more than 20x.

Tepper believes China has exceeded expectations with the latest move, citing Chinese officials as willing to do more if necessary. He further emphasized that the central bank encourages share buybacks and even lends money for this purpose at very favorable conditions. This is an internal stimulus that will boost consumption and Tepper believes the Chinese government is doing everything in its power to restart the economy.

While speaking about the global impact of this move, Tepper mentioned that the European market is already making cuts, the US market has already seen a cut and more are expected later in the year, and Japan is expected to follow suit as the Chinese make cuts. Tepper believes this is a very good scenario for undervalued stocks in China and around the world in general. Even for an American investor, Chinese stocks appear cheap compared to the market average. Additionally, Tepper believes that the United States is not currently a cheap market, but is slightly overvalued. Although it is a difficult comparison when comparing the price-to-earnings ratios of global stock markets, the United States will be slightly overvalued.

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Our methodology

To compile the list of 7 cheap internet stocks to invest in now, we used the Finviz stock screener and ETFs. Using these sources, we compiled a list of 15 internet stocks. From these stocks, we selected stocks that are trading below the forward price-to-earnings ratio of 23.98 (the market’s forward P/E ratio according to the Wall Street Journal) and whose earnings are expected to increase throughout the year. Once we had the list of cheap internet stocks, we ranked them based on the number of hedge funds that owned shares in them in the second quarter of 2024. We took this value from the Insider Monkey database of over 900 hedge funds. The list is arranged in ascending order by the number of hedge fund owners.

Why do we care what hedge funds do? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (Further details can be found here).

The silhouette of a singing artist on an illuminated online stage.

Tencent Music Entertainment Group (NYSE:TME)

Forward P/E ratio: 16.67

Profit growth this year: 26.40%

Number of hedge fund owners: 25

Tencent Music Entertainment Group (NYSE:TME) ​​is similar to Spotify in China, perhaps more so, given its cheap valuation. The company is a leading online music and audio entertainment platform in China. Popular streaming apps such as QQ Music, Kugou Music, Kuwo Music and WeSing allow users to access an extensive music library. It also has social entertainment features that allow users to engage socially through music.

The recent live streaming ban in Beijing has somewhat hampered the company’s growth. However, paying subscribers for music and entertainment categories keep the business stable. The ban caused revenue to decline 17% year-over-year, but paid music subscribers and entertainment subscribers increased 17.7% and 5.3%, respectively, in the second quarter of 2024.

This high number of subscriptions resulted in a 31.1% year-over-year increase in net income for the quarter.

The investment case for Tencent Music Entertainment Group (NYSE:TME) ​​remains positive due to its robust fundamentals. The company has increased its revenue by 5% and its profit by 23% over the past five years. Furthermore, management remains confident that the growing number of subscriptions will soon overcome the slowdown caused by the ban.

TME is cheap at current levels, trading at 16.67 times forward earnings, while the market average is around 24. Additionally, earnings are expected to rise 26.4% for the year. This makes it one of the cheapest internet stocks to invest in at the moment.

Poland Global SMID Company Growth Strategy stated the following regarding Tencent Music Entertainment Group (NYSE:TME) ​​in its Q2 2024 investor letter:

Total TME takes 7th place on our list of cheap internet stocks to buy. While we recognize TME’s potential as an investment, we believe AI stocks have more promise for delivering higher returns, and within a shorter time frame. If you’re looking for a promising AI stock trading at less than 5x earnings, check out our report on it cheapest AI stock.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley And Jim Cramer says NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.