10 Best Foreign Stocks To Buy Now

2. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders In Q2 2024: 91

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese eCommerce and cloud computing giant. With the firm responsible for at least 40% of the merchandise shipments in China, the firm benefits from a wide moat, customer volume, and merchant partnerships that are difficult to erode no matter what the prevailing economic condition is. Additionally, Alibaba Group Holding Limited (NYSE:BABA) is one of China’s biggest cloud computing companies, which provides it with a business with high margins and recurring revenues. Cloud computing can become one of the biggest beneficiaries of the surge in AI demand, enabling Alibaba Group Holding Limited (NYSE:BABA) to utilize its Cloud business as a solid base to target AI demand. However, the rise of Chinese eCommerce companies like PDD has caused market share losses for the firm as its eCommerce market share was 75% in 2015. Alibaba Group Holding Limited (NYSE:BABA)’s forward earnings estimate for 2026 of $9.91 lends it a forward P/E of 8.61, which reflects investor concerns about Chinese stocks and is considerably lower than Alibaba Group Holding Limited (NYSE:BABA)’s American peers.

O’keefe Stevens Advisory mentioned Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter. Here is what the firm said:

“It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business.

All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23. All investments carry risks; some can be diversified away, and others cannot. While incremental investments and spending will likely lead to margin compression, this is a necessary step to stabilize and potentially regain market share. The risk of continued market share loss from Pinduoduo (Temu), JD.com, Shein, and Douyin is shown below. Alibaba’s Chinese market share has declined from 78% in 2015 to 44% in 2022 and 40% in 2023.”