There's a place for stocks trading at low valuations (generally referred to as value stocks) in a well-rounded investment strategy. History shows that the relative performance between value and growth stocks can sometimes move back and forth like a game of tug of war.
Alibaba (
NYSE:BABA
), the Chinese tech giant, disappointed investors in 2023 while many of its American counterparts delivered strong returns. Alibaba stock has declined almost 40% in the last 12 months, but new catalysts have emerged to drive the stock higher in 2024. Although regulatory risks need to be monitored carefully, I am bullish on Alibaba stock.
SoftBank Finally Completes Divesting Alibaba
SoftBank (
OTC:SFTBF
), the Japanese investment firm led by billionaire Masayoshi Son, was one of the first institutional investors to believe in Alibaba. The investment firm invested $20 million in Alibaba in 2000. In late 2021, SoftBank entered into a forward contract with its subsidiary Skybridge to divest its Alibaba stake. This contract allowed SoftBank to repurchase Alibaba shares from Skybridge if needed.
On January 25, SoftBank announced the settlement of these prepaid forward contracts with Skybridge, reportedly booking a profit of around $8.5 billion from its investment in Alibaba. The investment firm has decided not to purchase or sell any new Alibaba shares in the foreseeable future. The firm currently owns a minor stake in Alibaba of approximately 0.5%, in contrast to an ownership stake of 32% back in 2021.
From a technical perspective, the massive selling pressure created by SoftBank over the last couple of years acted as a barrier for Alibaba stock to trend higher despite the company spending massive amounts on share buybacks. For reference, the company spent $10.2 billion on stock repurchases in the last 12 months.
Going forward, it seems reasonable to assume that buybacks will finally create a positive impact, assuming the company continues to perform well financially.
The Founder and President Are Betting on Alibaba
On January 23, SEC filings revealed that Alibaba founder Jack Ma and current Chairman Joe Tsai
both purchased company shares, indicating their improving sentiment toward the company’s prospects at a time when SoftBank is exiting its investment. Mr. Ma purchased Alibaba shares worth $50 million, while Mr. Tsai invested $151 million in the company through his family investment fund.
Following these transactions, Jack Ma and Joe Tsai became the two largest shareholders of the company, ending SoftBank’s reign that spanned several years. The founding members’ return as largest shareholders is likely to boost investor sentiment in the coming months, which was evident from the initial market reaction on January 23, when Alibaba stock jumped more than 7% following the release of SEC filings highlighting these transactions.
Alibaba Enjoys a Long Runway to Grow
Alibaba’s investment appeal stems from two factors: the long growth runway enjoyed by the company and its cheap valuation.
Alibaba has emerged as a leader in the cloud computing space in China, which is a market that is expected to grow exponentially in the next few years, with companies of all scales and sizes moving to the cloud. According to
Canalys data, Alibaba Cloud accounted for 34% of the cloud market in China at the end of Q1 2023, with Huawei Cloud in second place with a market share of 20%.
According to
Statista, revenue in the Chinese public cloud sector will grow at a CAGR of 18.7% through 2028, resulting in a market value of $137 billion at the end of the forecast period. The ongoing integration of AI capabilities in the cloud market will be one of the key growth drivers in the next five years.
Alibaba enjoys quantifiable pricing power in this market segment, and the company has reported consistently higher renewal rates compared to many of its peers. These observations suggest that Alibaba is well-positioned to make the most of the expected growth in the cloud market.
The company is integrating AI into its digital retail technologies, including the development of unified core technology and solving language translation challenges. In the digital media entertainment segment, the company is using AI to create next-generation content and to achieve process-based digitalized film and TV show production capabilities.
Although a full business separation may not be in the cards anymore, Alibaba continues to find ways to manage its business units independently, which should enable the company to unlock hidden value in the coming years. This will be another growth driver.
At a more granular level, the company has come up with ambitious visions for each of its key business segments. Examples include 1688 aiming to leverage products manufactured in China with business customers in mind, Xianyu seeking to become a lifestyle platform without limiting itself to secondhand goods, DingTalk aiming to become the best AI smart assistant system in China, Quark targeting students to sell its knowledge products, and Youku committing to prioritize self-produced content to compete in the video content niche.
Is Alibaba Stock a Buy, According to Wall Street Analysts?
Based on the ratings of 20 Wall Street analysts, BABA stock comes in as a Strong Buy. The
average Alibaba stock price target is $118.20, which implies upside potential of 63.4% from the current market price.
Alibaba is trading at a meaningful discount to its historical valuation multiples and also compared to its American counterparts. The company is valued at a forward P/E of 8.2 compared to its five-year average forward P/E of 18.15. To add more context, Amazon (
NASDAQ:AMZN
) is trading at a forward P/E of 59.4.
Alibaba’s cheap valuation has attracted many Wall Street bulls in recent months, but its stock has not performed up to expectations due to investor worries about Chinese regulators and other macroeconomic factors.
The Takeaway: Alibaba Stock Is Closer to Turning a Corner
Alibaba has remained cheaply valued for about two years. Today, new catalysts have emerged to drive the stock higher in the form of SoftBank completing its planned divestment of Alibaba shares and the improving regulatory improvement. The company seems attractively valued for long-term-oriented investors at a time when tables are turning in favor of the company both from a regulatory and financial performance perspective.
Disclosure
Alibaba (BABA) closed the most recent trading day at $72.32, moving -1.71% from the previous trading session. The stock fell short of the S&P 500, which registered a loss of 0.06% for the day. Elsewhere, the Dow gained 0.35%,
Chinese stocks (and many of their investors) have been battered over the past few years, so much so that many investors have shunned them. Despite the seemingly never-ending pressure that most Chinese stocks have endured, more than a handful of Wall Street analysts continue to view a select few of them as intriguing investments.
Undoubtedly, there's a high degree of geopolitical risk in investing in any Chinese stock. And as the Chinese economy continues battling headwinds, questions linger as to how much lower the broader basket of Chinese tech stocks can go.
Though Chinese stocks (especially the tech plays) are not everyone's cup of tea, it's hard not to be intrigued by them here if deep value is what you're after. With talks of
China stimulus, perhaps there is hope for the economy (and bruised Chinese tech stocks) to receive a much-needed boost.
Therefore, let's tune into
TipRanks' Comparison Tool to check in with three U.S.-listed Chinese tech stocks that Wall Street thinks could gain in 2024.
PDD Holdings (
NASDAQ:PDD)
First, we have PDD Holdings (best known as Pinduoduo), which has been one of the hottest Chinese stocks over the past two years. Shares have shot up more than 275% since ricocheting off their lows back in May 2022. Though the exponential past year of gains has put new highs within striking distance, there's a new slate of potential hurdles that could spark a pullback.
On Monday, the stock nosedived by more than 8%, as
Evergrande liquidation news sent jitters down investors' spines. Despite the shocking headline, though, I remain bullish on PDD stock. That's because its shopping app continues gaining in popularity while China continues to shed more light on its potential stimulus plans, which may have a "big impact," according to ex-PBOC officials.
In any case, it's hard to ignore the hype behind PDD's Temu app, which has pretty much gone viral in the U.S. Indeed, consumer appetite for incredibly low-cost discretionary goods could stay strong as inflation and macro headwinds continue to impair our ability to spend on nice-to-have goods. Even as consumer balance sheets get stretched further, it's tough to resist the allure of cheap goods and the ability to "shop like a billionaire," even with a somewhat stricter budget.
All things considered, PDD looks that much more intriguing after the most recent pullback, as bearish headlines (Evergrande) are mixed in with bullish ones (China stimulus).
What is the Price Target for PDD Stock?
PDD stock is a Strong Buy, according to analysts, with 13 Buys and one Hold assigned in the past three months. The
average PDD stock price target of $175.47 implies 34.8% upside potential.
Alibaba (
NASDAQ:BABA)
As PDD stock gained ground on the back of Temu, Alibaba has continued to sink further into the abyss. At writing, shares are back to $73 and change per share and are closing in on the lows (of around $58) they briefly touched back in late 2022. Thus far, BABA stock bottom-fishers have been left with little to show for their patience. However, this could change in a hurry as the company looks to harness the power of generative artificial intelligence (AI) while looking to benefit from any stimulus.
With shares approaching a long-term level of support (in the mid-$60 range), I'm inclined to be bullish, but I do acknowledge that a stomach of steel will be needed to cope with the profound share price turbulence. That said, with Alibaba ex-CEO
Jack Ma recently picking up $50 million in Hong Kong-traded shares, it's somewhat easier to be in the bull camp.
In many ways, Alibaba seems to reek of deep value, but only time will tell when Mr. Market will finally reward the stock with some sort of sustained rally. For now, it seems like BABA's stimulus-driven rally has been cut short, with Evergrande fears now hogging the headlines. Over the next year, look for potential AI announcements to help Alibaba finally move on from its epic sell-off.
What is the Price Target for BABA Stock?
Alibaba stock is a Strong Buy, according to analysts, with 18 Buys and two Holds assigned in the past three months. The
average BABA stock price target of $118.60 implies 61.2% upside potential.
Baidu (
NASDAQ:BIDU)
Speaking of AI, Baidu has been making headlines with its Ernie chatbot lately. Reportedly, the technology will be in the latest Samsung Galaxy S24 smartphones. Given the profound popularity of the Galaxy, I'd argue Baidu's partnership could bear massive fruit and help the stock move on from its multi-year funk. The Ernie AI news alone leaves me quite bullish on a stock despite recent news of the Evergrande liquidation.
As we march further into 2024, sophisticated large language models (LLMs) could change the way we view our smartphones. Indeed, smartphones and AI seem like a match made in heaven. Additionally, as Baidu looks to innovate on the front of AI whilst staying within the guidances put forth by regulators, I view the company as potentially one of the cheapest AI stock picks in the market.
Of course, the "value" to be had in the stock may be nothing more than a hallucination if stimulus can't jolt China's pained economy. Additionally, geopolitical risks are always something to consider before buying any seemingly cheap Chinese stock with both hands.
What is the Price Target for BIDU Stock?
Baidu stock is a Strong Buy, according to analysts, with 17 Buys and one Hold assigned in the past three months. The
average BIDU stock price target of $165.28 implies 53.4% upside potential.
The Bottom Line
It's hard to be bullish on China's tech plays as they face continued turbulence and negative economic headlines over the coming quarters. Nevertheless, though untimely, the following stocks could prove to be deep value plays in the grander scheme of things. Of the three Strong Buy-rated stocks, analysts see the most upside potential in BABA (61.2%) for the year ahead.
Disclosure
Shares of PDD Holdings (NASDAQ: PDD) were falling today as the parent of Pinduoduo and Temu was swept up in the broader fallout after a Hong Kong court ordered liquidation of China Evergrande Group, which was once China's biggest real estate developer.
With the S&P 500 having recently surged to a new high, investors are officially in a bull market. But the spoils of the stock market's incredible rally have been unevenly distributed -- and that's putting it mildly.
Alibaba (NYSE: BABA), China's largest e-commerce and cloud company, went public at $68 per American depositary share (ADS) on Sept. 18, 2014. It was valued at $169.4 billion upon its debut, making it the largest U.S. initial public offering (IPO) ever. Its stock hit an all-time h
After an encouraging rally to end 2023, the major indexes continued their winning streak in the new year. The Nasdaq Composite is just a couple of percentage points from setting new highs, up 36% over the past 12 months.
PDD (NASDAQ: PDD), more commonly known as Pinduoduo, is China's third largest e-commerce company by annual revenue after Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD). However, it's still growing faster than both those market leaders.
It's been a wild four years for Wall Street. Since the decade began, all three major stock indexes have oscillated between bear and bull markets in successive years. These swings have been especially noticeable for the growth stock-driven Nasdaq Composite (NASDAQINDEX: ^IXIC).
The NASDAQ 100 Pre-Market Indicator is down -54.77 to 17,462.22. The total Pre-Market volume is currently 33,568,463 shares traded.The following are the most active stocks for the pre-market session: ProShares UltraPro Short QQQ (SQQQ) is +0.16 at $12.13, with 3,759,979 shares t
The retail sector includes companies ranging from traditional brick-and-mortar stores to e-commerce giants. The outlook for this sector appears promising, bolstered by expectations of rises in consumer spending amid easing inflationary pressures and the potential for near-term interest rate cuts. To help identify the best retail stocks for your portfolio, we have leveraged the TipRanks
Stock Screener tool.
These stocks have received a Strong Buy rating from analysts and boast an Outperform
Smart Score (i.e., 8, 9, or 10) on TipRanks, which points to their potential to beat the broader market. Further, analysts’ price targets reflect a solid upside potential of more than 10%.
Here are the five such stocks for investors to consider.
Five Below (
NASDAQ:FIVE
) – Five Below is a specialty discount retailer offering various high-quality products, primarily priced below $5, catering to the teen and pre-teen population. FIVE stock’s average price target implies an upside potential of 15.4%. Also, its
Smart Score of eight is encouraging.
PDD Holdings (
NASDAQ:PDD
) – This Chinese e-commerce platform connects consumers with manufacturers and agricultural producers. PDD stock’s price forecast of $175.47 implies 21.5% upside potential. Moreover, it has an outperforming
Smart Score of “Perfect 10.”
Alibaba (
NYSE:BABA
) – Alibaba is a Chinese multinational conglomerate specializing in e-commerce, retail, internet, and technology. The stock’s average price target implies an upside potential of 57.7%. Further, it has a
Smart Score of “Perfect 10.”
Walmart (
NYSE:WMT
) – This multinational retail corporation is known for its extensive chain of hypermarkets, discount department stores, and grocery stores. WMT stock has an average price target of $180.25, which implies a 10.7% upside potential from current levels. It has a
Smart Score of nine.
Amazon (
NASDAQ:AMZN
)– This multinational technology and e-commerce company is known for its online retail platform, cloud computing services, digital streaming, artificial intelligence, and consumer electronics. AMZN stock has an analyst consensus upside of 18.4% and a
Smart Score of nine. Ahead of its
Q4 results due on February 1, eight analysts rated the stock a Buy.
Disclosure
Chinese e-commerce and cloud behemoth Alibaba stock (NYSE:BABA) has considerably underperformed the broader tech indices, declining by about 7% year-to-date and by over 40% over the last 12 months. The company has been weighed down by multiple issues. For one, the Chinese economy
In the latest trading session, Alibaba (BABA) closed at $75.20, marking a +1.59% move from the previous day. The stock outperformed the S&P 500, which registered a daily gain of 0.08%. On the other hand, the Dow registered a l
If any Wall Street-listed company represents the ups and downs of China's economy, it would be Alibaba (
NYSE:BABA
). You may be ready to load up on Alibaba shares right now, especially if you're optimistic that China will turn a corner this year. For the very long term, I am bullish on BABA stock, but today, I'm providing a cautionary note due to an imminent make-or-break event.
Alibaba is basically the Chinese counterpart to America's Amazon (
NASDAQ:AMZN
). Like Amazon in the U.S., Alibaba is an e-commerce giant in China that is also successful in market niches outside of e-commerce.
Maybe China is on the cusp of an economic comeback of epic proportions; it's hard to know for sure. Nevertheless, if Alibaba posts positive numbers and provides encouraging guidance in an upcoming earnings report, the bull case for BABA stock could be practically unassailable.
Is Alibaba Stock Too Cheap to Ignore?
First and foremost, I should address an eyebrow-raising comment made by a highly respected analyst firm. Specifically, Barclays (
NYSE:BCS
) analysts reportedly went so far as to declare that
Alibaba stock is "too cheap to ignore."
Certainly, it's hard to argue with the "cheap" designation. While American technology stocks soared last year, BABA stock foundered like a sinking ship. Hence, if you truly believe in buying low and selling high, investing in Alibaba should make perfect sense.
Applying traditional valuation metrics seems to support this point. Alibaba's GAAP trailing 12-month price-to-earnings (P/E) ratio of 10.6x is undoubtedly more appealing than the sector median P/E ratio of 17.51x.
Barclays analyst Jiong Shao also considered Alibaba's valuation. Observing that Alibaba has generated $27 billion in
free cash flow in the last 12 months, Shao assessed Alibaba's valuation as “among the most compelling.” Furthermore, Shao believes that BABA stock "screens as the cheapest major tech stock globally" and assigned it an Overweight rating.
In case that's not enough motivation for you, here's another piece of notable news. Apparently, there's been some serious insider buying going on at Alibaba. In particular, Alibaba co-founder Jack Ma reportedly
purchased $50 million worth of the company's shares.
Not only that, but Alibaba Chairman reportedly
bought $151 million worth of BABA stock shares in last year's fourth quarter. That's a sure sign of confidence among two Alibaba insiders with deep knowledge about the company.
Traders are Excited About Alibaba, but be Careful Now
Excitement over Chinese tech-related stocks building, but does this mean you have to invest in Alibaba right now? Not necessarily, as waiting could be the most prudent policy.
The excitement isn't limited to Alibaba but really pertains to Chinese businesses generally. That's because China’s central bank plans to
add $139 billion worth of long-term liquidity to the nation's economy by reducing the cash reserve ratio for banks. Moreover, Chinese authorities are reportedly looking at a massive $278 billion rescue/bailout/stabilization package.
Consequently, stock traders recently
gobbled up shares of Alibaba stock and other
China-associated tech stocks. Thus, in the short term, it might be claimed that the forceful measures of China's central bank have been successful.
On the other hand, it's too early to simply declare victory and assume that Chinese stocks will continue higher throughout the year. Government intervention in the economy and markets isn't always the ideal solution to a crashing stock market. For instance, you may recall the time when Chinese authorities restricted short selling in order to prop up the nation's stock market. This tactic didn't work well in the long run.
Whether China's government intervention succeeds in supporting the country's economy and markets remains to be seen. One could certainly argue that the U.S. stock market has benefited whenever the Federal Reserve pumped liquidity into the banking system. So, maybe this strategy will work in China, with positive ramifications for Alibaba.
That said, it's probably not an ideal time to jump right into BABA stock. Alibaba has a crucially important earnings report coming up on January 31. It would be quite disappointing if the company breaks its excellent track record of consecutive EPS forecast beats.
The stakes are high, and so are the expectations. Wall Street anticipates that Alibaba will report EPS of $2.73 for the third quarter of Fiscal Year 2024. That's higher than any quarterly EPS forecast in recent history for Alibaba. Could a major letdown be in store?
Is BABA Stock a Buy, According to Analysts?
On TipRanks, BABA comes in as a Strong Buy based on 18 Buys and two Hold ratings assigned by analysts in the past three months. The
average Alibaba stock price target is $118.60, implying % upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell BABA stock, the most profitable analyst covering the stock (on a one-year timeframe) is Rob Sanderson of Loop Capital Markets, with an average return of 11.74% per rating and a 52% success rate. Click on the image below to learn more.
Conclusion: Should You Consider BABA Stock?
I'm bullish on Alibaba's growth prospects, but only for the very long term. For the immediate term, there's uncertainty regarding China's intervention as well as Alibaba's imminent earnings results. Therefore, I feel that waiting for a little while longer is a sensible policy. Even if Alibaba has the potential to stage an epic comeback in 2024, right now, I'm not ready to consider a share position in BABA stock.
Disclosure