Issue #59: A fast-rising disruptor shaking up the world’s largest e-commerce market and an ultra-stable US healthcare giant.


Pinduoduo has shaken up the world’s largest e-commerce with a combination of innovation, strategy, and execution. Now they’re moving on the global market, starting with the US.

Humana is a leading provider of health insurance plans, primarily under contracts with Medicare and other government programs. It’s well insulated from recession and inflation and showing solid growth.


Pinduoduo Inc.  ($PDD)


???? Summary:

  • Share price at the time of writing: $87.03
  • Pinduoduo is a fast-growing Chinese e-commerce platform focused on the concept of social commerce.
  • $PDD gained popularity by facilitating group bulk buying at very low prices.
  • The Company has expanded into the US market with the Temu app, launched on Sept 30 and already one of the country’s most popular downloads.
  • $PDD shares are trading at 54% below their January 2021 peak despite rapidly growing revenue and earnings.

 ???? What they do:

Pinduoduo is a Chinese e-commerce platform. The Company got its start linking farmers with buyers of fresh produce and subsequently expanded to include a wide range of consumer goods.

Pinduoduo offers buyers opportunities to combine their purchasing power to order directly from producers at rock bottom prices. The name translates to “shop more together”. The platform now connects over 16 million producers with over 850 million buyers.

The platform offers special deals to members who recruit other buyers into buying teams using China’s ubiquitous WeChat social media platform, promoting rapid expansion. In 2021 Pinduoduo surpassed Alibaba to become China’s top online shopping site by number of users.

Pinduoduo has maintained and expanded its early focus on agriculture, reducing distribution costs by as much as 40% by connecting buyers directly to farmers and developing innovative cold chains allowing for next-day delivery for orders direct from farms.

The ability to purchase cheap fresh food – something everyone needs – has attracted huge numbers of buyers, including large numbers of middle class and working class women in small and mid-sized cities and rural areas, group largely underserved by existing e-commerce platforms. 

Drawn by cheap food, these buyers become comfortable with the app ad begin using it to get cheap deals on housewares, hygiene products, clothing, toys, and other high-volume consumer goods.

Source: The Strategy Story

While competitors like JD and Tmall have focused on bringing higher-end imported goods to more affluent customers, $PDD links a much larger price-sensitive market to highly affordable goods.

$PDD has entered the US market with Temu, a shopping app aimed at directly competing with fast-fashion giant Shein. The website and app launched on Sept 30, 2022 and by October was one of the most downloaded apps through both Apple and Google.

The Temu app features extraordinarily low prices and the same and the same “team up, price down” strategy that served Pinduoduo so well in China.

$PDD is incorporated in the Cayman Islands and trades on the NASDAQ as American Depository Shares (ADS). The Cayman Islands company has contractual relationships with its operating subsidiaries in China.

???? What we learned from social media and institutional investment patterns:

$PDD sees sporadic discussion on r/WallStreetBets. The average daily number of mentions is low, but mentions spike in response to news about the Company or about China stocks in general.


Mentions across Reddit are more common, but post searches indicate that most of them are in the context of wider discussions about Chinese e-commerce stocks or Chinese stocks in general.

This is expected, as stock discussion has been generally muted since the start of the bear market and Chinese stocks in general are widely out of favor. While current discussion levels are low, awareness is clearly present.

The largest holder of $PDD shares is founder Colin Huang, China’s 3rd richest man, who holds around 35% of the Company. Huang is a US-educated billionaire and philanthropist with stints at Microsoft and Google on his resume.

Multimedia conglomerate Tencent Holdings has an additional 15%, and Gaorong Capital holds 6.6%, placing majority ownership firmly in Chinese hands.

Of the shares trading on the Nasdaq, slightly over 25% are held by institutions. This is a quite low figure, but institutional owners seem to have a generally positive view of the stock’s prospects.


???? Smart Money Signal: Ray Dalio holds over 5 million shares of $PDD, with over 3.5 million purchased since the stock’s February 2021 peak.

???? Why $PDD could be valuable:

China is the world’s largest e-commerce market, and is expected to show a CAGR of 11.3% through 2027. 

The platform’s focus on low prices and fast delivery for fresh produce items has driven very rapid adoption: everybody buys food. Farmers that have traditionally been at the mercy of rapidly changing wholesale prices and inefficient logistics chains have flocked to the platform.

This feature, combined with the team purchase and social commerce features like the ability to share product information and invite contacts to purchasing teams – has developed a strong following among working class and middle class women who dominate the market for food, kitchenware, household goods, clothing, and many other products.

Pinduoduo also invests heavily in training farmers, agricultural development, and supply chains to maintain its competitive edge in its core farm-to-table business. $PDD was named as one of the 10 most innovative logistics companies of 2022 by Fast Company

Pinduoduo has expanded to the global market, including the US, with the Temu shopping app, which offers extraordinarily low prices, but with much longer delivery times than most US online shopping platforms, as goods are shipped from China. 

It’s not yet clear how much traction will gain in the crowded US market, but the app has quickly become one of the most downloaded apps in the US.

Source: TechCrunch

Temu has been primarily promoted in the US market, which accounts for 97% of downloads, but it is available globally and may achieve significant success in high-population price-sensitive markets like India and Southeast Asia.

$PDD revenues have grown consistently and dramatically since the company entered the market.

Source: Statista

Diluted EPS turned positive in 2021 and have increased steadily since:

Source: Macrotrends

After an industry-wide growth slump in late 2021 and early 2022, Q3 2022 results returned to this exceptional growth trend, with revenue up 65% from the equivalent quarter a year before and earnings up 388%

$PDD shows remarkably high profitability for a discount retailer, with a 23.9% operating margin and a 32.67% return on equity.

The balance sheet is extremely strong, with $137.8 billion in cash against $17 billion in debt. There’s no shortage of cash to invest in expansion.

$PDD trades at 31.28x trailing earnings and 7.62x trailing sales. Those are not extraordinarily low measures, but they are justified by the combination of growth and profitability.

$PDD has beaten analyst earnings estimates by wide margins for four consecutive quarters. In the last two quarters earnings have been roughly double the consensus estimate.

Analyst sentiment is extremely positive. 43 analysts currently cover $PDD. 17 rate it a strong buy, 22 say buy, and 4 say hold.

⚠️ What the risks are:

1️⃣ The China Factor. All China-based stocks share certain unique risks, including the risk of government interference with their operations and continuing disputes over reporting and disclosure that have led to speculation that Chinese stocks could be delisted from US exchanges.

2️⃣ Corporate structure risks. $PDD is a Cayman Islands corporation that has contractual relationships with the operating business units in China. If this structure is challenged or there are disputes among the parties, there is no assurance that the contracts will be enforceable.

3️⃣ Competition. China’s e-commerce is crowded and many of the players have extensive resources. Substitution costs are minimal to nonexistent and no company has an effective moat. $PDD will have to continuously innovate and execute to maintain its competitive position. In the US, Temu offers low prices but much longer delivery times than customers are used to. It’s not clear how this will affect its competitive position.

Bottom line: Pinduoduo is a rare example of a company that seems to be doing pretty much everything right. They won’t keep growing at the rate of recent years – that’s not mathematically possible – and the US venture is not a guaranteed success, but even with those constraints the venture remains compelling. If you think China stocks have a future – the biggest question mark in this picture – this one is certainly worth considering.

Humana Inc ($HUM)


???? Summary:

  • Share price at the time of writing: $503.53
  • Humana is a major provider of health insurance in the US.
  • Most Humana revenue comes from contracts with the US government, under Medicare, Medicaid, and the US military’s TRICARE.
  • The share price has fallen almost 53% in the last year despite steadily improving performance.

???? What they do:

Humana is one of the largest health plan providers in the US. The Company was founded in 1964 and is based in Louisville, KY.

Humana has approximately 17 million members in its medical benefit plans and another 5 million in specialty product plans covering dental, vision, and other services. 83% of premiums and services revenue come from contracts with the federal government.

15% of premiums and services revenue comes from Medicare Advantage contracts in Florida with the Centers for Medicare and Medicaid Services (CMS).

Humana has three reporting divisions.

  • Retail includes products sold on an individual basis, primarily Medicare progams. Humana offers at least one Medicare plan in all 50 states. This segment provides 89.2% of revenue.
  • Group and Specialty provides commercial insurance to employers and other groups, including TRICARE contracts with the US military. Along with  dental. Vision, and life insurance. The division contributes 8.3% of revenue.
  • Healthcare Services includes pharmacy, healthcare provider, and home services to Humana plan holders, including full-service medical centers in nine states. The division provides 2.7% of revenue.

Humana’s retail division provides access to health care services primarily through contracted networks of providers. Services are provided through three models.

  • Health Maintenance Organizations (HMOs) provide comprehensive care through a network of participating providers.
  • Preferred Provider Organizations (PPOs) allow members to choose any provider, but they may pay more for out-of-network providers.
  • Point of Service (POS) plans allow members a range of out-of-network and in-network providers, adding more flexibility.

Humana provides these services primarily to Medicare-eligible individuals through contracts with CMS. Humana provides coverage under CMS contracts to roughly 4,409, 100 individuals.

Humana offers stand-alone prescription drug plans under Medicare Part D in a co-branded offering with Wal-Mart.

HUM provides services to Medicaid-eligible individuals through contracts with state governments in several states, including Florida, Kentucky, Ohio, South Carolina and Wisconsin.

Humana provides insurance to 6 million TRICARE beneficiaries in the East Region under a contract with the US Department of Defense.

In August 2021 Humana acquired Kindred at Home (KAH), the nation’s largest home health and hospice provider. KAH has locations in 40 states, boosting Humana’s effort to provide cost-effective home-based care.

???? What we learned from social media and institutional investment patterns:

Humana receives minimal attention on the main stock discussion forums on Reddit. 

Source: quiverquant

Reddit searches indicate that most mentions of $HUM are in the context of general discussion of dividend stocks, healthcare stocks, or defensive investments rather than in threads dedicated to the Company.

This is expected. Humana is a classic “boring stock” that would not receive significant social media attention even during bull markets when social media chatter is peaking.

Also as expected, $HUM has a very high percentage of institutional ownership. Over 96% of the float is held by institutional investors. Blackrock and Vanguard lead the pack with over 11 million shares each. Institutional investors show a generally positive trading pattern.

Source: Quiverquant

???? Smart Money Signal ???? Ken Griffin of Citadel has purchased 748,000 shares of $HUM in the last 3 quarters, and now holds a total of 1.15 million shares..

???? Why $HUM could be valuable:

McKinsey estimates that the US national health expenditure will grow at a rate of 7.1% a year through 2027. The US health insurance market in particular is expected to show a CAGR of 9.5% through 2028. 

Medicare Advantage plans, which make up a large percentage of Humana’s business, are rapidly gaining in popularity. The Kaiser Family Foundation predicts that per capita Medicare spending will increase 5.1% a year through 2028.

These increases are driven largely by the aging of the Baby Boom generation. Boomers are now aged 58 to 76, meaning that a substantial number are still employed and not yet Medicare-eligible. That will drive growth in Medicare-related spending for close to another decade.

Healthcare is a notably inflation-resistant and recession-resistant business: people need care no matter what economic conditions prevail.

The KAH acquisition dramatically boosted Humana’s home care capacity. The ability to deliver effective home care reduces client dependency on expensive hospital care, reducing the overall cost of care.

$HUM is currently a front runner in the race to acquire Cano Health, one of the nation’s largest providers of primary care to families and seniors. Cano has facilities in California, Florida, Illinois, Texas, and New Mexico. Adding the primary care capacity of Cano to the $HUM package could substantially reduce secondary and tertiary care costs.

$HUM has the right of first refusal over a Cano acquisition under a 2019 agreement.

Humana has boosted its projection for individual Medicare Advantage growth in 2023 from 150,000 – 200,000 to 325,000-400,000. EPS growth is expected to be 11% to 15%.

Revenues have grown steadily and consistently since 2009, and are up 66% in the last 12 months, and share buybacks have reduced the float by 12%, with the combination increasing revenue per share by 90% over the last year.

$HUM has beaten consensus analyst earnings estimates for four consecutive quarters.

Humana’s forward dividend yield is only .6%, but the dividend has grown every 12% to 15% every year since 2017, and the very low 12% payout ratio could easily support a much higher dividend. 

Humana’s cash position of $26.68 billion is significantly higher than its $10.83 billion debt.

19 analysts currently cover #HUM. 7 rate it “Strong Buy”, 5 say “Hold”, and 7 say “Hold”. The average price target is $615.18, 22% above the current price.

⚠️ What the risks are:

1️⃣  High dependence on government contracts. The rapid growth of Medicare spending may become unsustainable, leading to regulatory changes or even structural changes in the US healthcare system. Such changes could have a dramatic impact on Humana’s business..

2️⃣  Contract renewal risk. Humana’s government contracts must be renewed regularly and the company faces a detailed performance review with each renewal. Any failure to meet standards could result in contracts being terminated.

3️⃣  Underwriting risk. A large portion of revenues are paid out to cover member claims. Humana must effectively assess risk and set premiums appropriately. Laws prohibit consideration of pre-existing conditions in setting premiums in some cases, increasing this risk. Failure to anticipate and correctly assess risk would have a material impact on results.

Bottom line: Humana is a highly secure defensive stock that is very well positioned to endure and prosper in any economic conditions. It also combines a high degree of resilience with strong growth, something that’s not present in many fundamentally defensive stocks.

That's a wrap!

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