5 Out of Favor Stocks That Hedge Funds Love

1. Alibaba Group Holding Limited (NYSE:BABA)

Two-year performance: -54.21%

Number of Hedge Fund Holders: 128

A Buy rating was maintained on Alibaba Group Holding Limited (NYSE:BABA) shares on July 12 by Eddie Leung at BofA. The analyst also holds a price target of $137 on the stock.

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese broadline retail company based in Hangzhou. The company provides tech infrastructure and marketing reach to merchants, brands, retailers, and businesses in China and abroad.

In the first quarter, 128 hedge funds were long Alibaba Group Holding Limited (NYSE:BABA). Their total stake value was $5.9 billion.

Oakmark Funds noted the following about Alibaba Group Holding Limited (NYSE:BABA) in its second-quarter 2023 investor letter:

“Alibaba Group Holding Limited (NYSE:BABA) (China) was the top detractor for the quarter. Sentiment in Chinese equities has degraded after the initial excitement from China’s reopening earlier in the year. Incremental macroeconomic data coming out of China indicates that the Covid-19 re-opening bounce is fading, and the economy is struggling to sustain healthy growth. Political tensions between the U.S. and China are also further weighing on investor sentiment. As the largest e-commerce platform in China, Alibaba’s share price has been caught up in this storm. The company has also continued to face intense competition from the likes of short video players and traditional e-commerce companies. Indeed, Alibaba has lost market share, which we expect will continue. But despite these negative factors, it remains an extremely important platform in China and continues to generate significant free cash flow. In the most recent completed fiscal year, the company generated $25B of free cash flow, which is 12% of the current market capitalization. Today, its core commerce business trades at approximately 5x EBITA, a valuation we deem much too cheap, even with the headwinds noted above. But valuation alone is often not enough to unlock value. Alibaba’s management team is proactively working for minority shareholders. The company has been aggressive with share repurchases and with the recent formation of a capital management committee. Our conversations with the company indicate there is a high probability that more shareholder returns will be coming. In addition, the company recently announced a major restructuring that will effectively break up the company and separately list various businesses within Alibaba. Today, the market is assigning little to no value to these businesses and having a market quote may force investors to give Alibaba value for these assets. Whether or not the restructuring works, we appreciate management’s efforts to help unlock value in what is clearly an undervalued stock.”

See also 10 Stocks That Will Skyrocket and 25 Most Owned Stocks by Hedge Funds.