Key insights
- The shrinking middle class, driven by inflation and AI disruption, favors discount retailers. Walmart and Ross Stores are positioned to benefit in the US as consumers seek lower prices. Pinduoduo (Temu) is also highlighted for its global expansion in offering extremely cheap products, reflecting a worldwide trend towards value shopping. This suggests a potential tailwind for companies catering to budget-conscious consumers.
I want to share a medium‑ to long‑term value‑stock strategy built around a simple idea: the middle class is shrinking, in the U.S. and around the world. Since the pandemic, inflation has pushed up the cost of living almost everywhere. Disrupted supply chains and loose monetary policy started the process, and then the Russia‑Ukraine war and conflicts in Iran drove energy prices higher, making inflation even worse. At the same time, AI is disrupting white‑collar work on a large scale. Put bluntly, the more your job involves working at a computer, the more likely it is to be replaced by AI in the near future. With all these forces in play, it is no surprise that the middle class is shrinking: many households are slipping into lower income groups, and many young people may never make it into the middle class despite trying hard.
Against this backdrop, I think three stocks are worth holding for the medium or long run. The first is Walmart. Bill Maher once joked that middle‑class Americans should never shop at Walmart. Today, many of them will need to rely on Walmart for cheaper groceries. Sam’s Club is also doing very well globally, especially in emerging markets like China, for the same reason: people are looking for lower prices.
The second stock is Ross. It targets shoppers who want heavily discounted apparel. Part of Ross’s appeal is not just the low prices, but the “treasure hunt” experience. Because products arrive without a fixed schedule, customers enjoy browsing and the feeling of finding a bargain, on top of the savings.
The third stock is Pinduoduo, the parent company of Temu. In China, Pinduoduo has become what Alibaba used to be in terms of perceived value: users associate it with good deals. Even if they do not buy on Pinduoduo, they often check its prices as a benchmark. On top of that, Temu is expanding rapidly in many countries as a platform for extremely cheap products, which reinforces Pinduoduo’s global value image.
Among these three stocks, Walmart and Ross are relatively defensive and look quite safe to me. Pinduoduo carries some risk because of potential U.S.-China tensions, but it also offers much more upside. The stock is very undervalued given its growth potential, with a P/E ratio around 8 and a P/S ratio of about 1.9. In contrast, Alibaba, which Pinduoduo is increasingly beating in China, trades on a P/E of about 17. That valuation gap highlights how much growth the market is already pricing into Alibaba and how much is still left on the table for Pinduoduo.
I am not including companies like Dollar Tree in this strategy. I am simply not familiar enough with their business models or with how they plan to manage a prolonged period of high inflation, so I prefer to leave them out for now.