Is Alibaba BABA stock a great buying opportunity? August 2021

 

BABA has been unfairly beaten down with one bad news after another related to regulatory actions from the Chinese government. Most of these have nothing to do with BABA, but investors are mentally grouping all Chinese companies together. At the time of the writing, $BABA is trading at only $160. Meanwhile, the fundamentals of the company only get stronger and stronger as it takes over every aspect of life for over 1 billion people. As a Chinese American I have a special perspective about what is going on. BABA is a great buying opportunity for reasons I will write below.

The actual actions of the Chinese government are similar to what the US and Europe are already doing

Today’s regulation law is about stopping theft and fraud. BABA stock got hammered. How is promoting fair business practices, regulating fake product reviews, and promoting consumer data privacy a bad thing? What’s the difference between this and what our American government is doing? Soon American Big Tech companies are going to face the same regulations, and this will hit the US stock market as Big Tech absolutely dominates all the indexes. Yes, there’s also rumors of the Chinese government scaring Jack Ma to do and say what it wants, but this doesn’t affect his company. Yes, the Chinese government is punishing other Chinese companies for different reasons, nothing to do with BABA however. Yes, Chinese companies are listed under the VIE structure, which seems like a shady practice, but there is no real risk to it. Eventually, investors will become habituated to the bad regulatory news. They will also see the same regulatory news coming out of the US government and European Union and realize that it doesn’t affect the fundamentals of the company.

The Chinese government wants their own companies to do well

State controlled newspapers realize the damage the regulatory actions are causing amongst US investors and have been attempting to calm. This means they still want their companies to do well. Any patriotic Chinese person uses the technology and root for the companies behind them. This includes government officials.

Valuation still matters in the long run

If we value BABA the same way we value AMZN, it would be worth $500. With a P/E of 16 and a long term growth rate of 50%, your PEG ratio is only 0.32. This means even if the stock triples today, it’ll still be undervalued with a PEG below 1. Their revenue is $205 billion and their profit margins are insanely high. This means they spend very little to make their money and their moat is extremely wide.

If stock price doesn’t keep up with valuation, the company will just start buybacks or issue a dividend. This is what BABA has started doing and they will keep increasing their buybacks. So investors will make money investing in a profitable company no matter what.

Chinese people would soon be able to invest in the United States stock market

This would be a huge influx of money, with a heavy bias to local Chinese companies that already dominate the lives of Chinese investors.

Sentiment is turning positive again

The media’s spin on BABA has gone from very negative to positive. Both Wall Street investors and retail investors are developing positive sentiment again. There are 506 positive mentions on Reddit forums including r/wallstreetbets and +9.7% positive sentiment value. Someday I will write an article about how sentiment investing makes higher returns than traditional value investing or growth investing. In the case of BABA, it’s a rare instance where all three of value investing, sentiment investing, and growth investing come together.

I’ve made this bet before with FB and TSLA and it paid off

I got FB on its dip at $130 and TSLA for $40 under similar bad news spreading FUD (fear, uncertainty, and doubt) that had nothing to do with the fundamentals of the company. FB had a data breech from 4 years prior that came to light. TSLA had a fatal accident using their new self driving system. I was surprised by how much the media negativity was able to scare off investors and drive the stock prices way down. Where are these stocks now?

We will see if I am right 1 year from now, and see where the stock is again in 3 and 5 years

I don’t get very many visitors to my blog. In the future, if I do get a lot of visitors, they get to see the past bets that I have made. The stock picks I am most confident about are SAVA and BABA. I am a buy and hold investor with a long time horizon. My hope is for my stocks to go up year after year so I can hold them for 5-10 years. My index funds I plan to hold forever.

This week's position additions:

BABA – bought a large position at $160

MVST – added to my position at $8.33

ASTS – added at $8.25

MU – added at $69

SAVA – started position at $47 a few months ago, would have added more at $100 but my broker doesn’t allow margin to purchase this stock

OHI ($32) and NRZ (9.50%) REITs - they pay 8.4% dividend that is sustainable, which in my portfolio margin account is effectively a 56% dividend. This added an uncorrelated asset for portfolio stability and an automatic way to slowly pay off my margin.

Sold off AMZN. I expect them to do extremely well, but I already own so much of this company through TQQQ and am looking to diversify.