10 Best Consumer Cyclical Stocks To Buy Now

2. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Investors In Q1 2024: 103

Alibaba Group Holding Limited (NYSE:BABA) is a diversified Chinese company that primarily operates in the eCommerce industry. Data from the Hong Kong based DBS bank shows that Alibaba Group Holding Limited (NYSE:BABA) had a market share of 40% based on gross merchandise volume. This makes it a dominant player in the industry and provides it with stability in a weak Chinese economy. The sizeable user base, coupled with a cut throat Chinese market full of emerging eCommerce players like Pinduoduo, means that Alibaba Group Holding Limited (NYSE:BABA) needs to be on its toes if it’s to keep its dominant position. Alibaba Group Holding Limited (NYSE:BABA) has launched its AI based Alimama tool that enables merchants on its platform to advertise their products based on return on investment (ROI). Like its American peer Amazon, Alibaba Group Holding Limited (NYSE:BABA) also has a sizeable presence in the Chinese cloud computing market (37% share according to DBS). This provides it with a diversified revenue base in a highly lucrative market – particularly so when AI is brought into the product mix.

Alibaba is expected to generate around $20 billion in earnings over the next 12 months. Its current market cap is $175 billion but it has $50 billion in net cash according to Yahoo Finance. This means the stock is trading at an adjusted PE ratio of 6. This is because investors don’t trust the Chinese government. We haven’t even considered adjusting our valuation metrics for Alibaba’s large stakes in other companies and the future potential of its AI and cloud investments. If BABA were a US-based company operating in the US, it would have been trading at around $400.

Artisan Partners mentioned Alibaba Group Holding Limited (NYSE:BABA) in its Q1 2024 investor letter. Here is what the firm said:

Alibaba shares declined 7% during the quarter. There isn’t much new to say about Alibaba. There was no meaningful news that drove the share price decline. The earnings for the December quarter were fine, with revenues and profits both increasing 5%—not typically an exciting level of growth, but certainly enough to justify the company’s paltry valuation of 4X–5X EBIT. As we have written in recent letters, this is a valuation level that is normally reserved for a dying business, and Alibaba is not a dying business. Management continues to implement changes that are intended to increase shareholder value. Over the past year, they have changed management, adjusted the company structure, contemplated spinning off assets, made progress monetizing the balance sheet and have improved the capital allocation. All of these actions have yet to be reflected at all in the share price. This is a stock that could double and would still be cheap.