We recently compiled a list of the 10 Best Undervalued Stocks to Buy According to Reddit. In this article, we are going to take a look at where Alibaba Group Holding Limited (NYSE:BABA) stands against the other undervalued stocks. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.
Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.
The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.
The two major factors driving Lee’s bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.
This uncertainty about the stock market, coupled with stocks’ volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.
Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock’s actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.
Methodology
We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey’s database of 920 hedge funds for Q1 2024 was used for that purpose.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An e-commerce platform displaying a wide range of products to customers online.
Alibaba Group Holding Limited (NYSE:BABA)
Investors on Reddit that consider the stock undervalued: 12
Alibaba Group Holding Limited (NYSE:BABA) is a Chinese multinational company with expertise in e-commerce, retail, and technology. It provides business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C) sales services through global marketplaces, cloud-computing services, logistics, and digital media and entertainment, among other offerings. During the fourth quarter of FY2024, the company beat both earnings and revenue estimates due to a solid show in its international wholesale and commerce retail businesses. The EPS was posted at $1.40, surpassing estimates by 12.9%. Its revenue totaled $30.73 billion, which was 7% higher YoY.
However, the company has been struggling for a while. Lackluster financial performances over the past few years coupled with uncertainties in China have hurt the investor sentiment around the stock. Its e-commerce business has suffered as Chinese consumers become more price-conscious amid a global slowdown. Alibaba Cloud remains a significant player but is losing its market share to competitors such as Amazon, Microsoft, and Alphabet. According to Wall Street analysts, the company’s earnings are only expected to grow at a CAGR of 1.7% over the next five years.
Nevertheless, bulls remain optimistic about the stock rebounding provided the situation improves in China. Alibaba Group Holding Limited (NYSE:BABA)’s share price has been increasing since it shifted back to focus on domestic e-commerce and invested in AI, cloud computing, and expansion into other foreign markets. Shares price has jumped 5% since founder Jack Ma returned to public view in April this year. There is consensus among rating firms about the stock having a Strong Buy rating, with an average price target of $107.15, which will represent an upside of 42.35% from its current levels. Another vital factor driving their forecasts is the company’s strong cash flow position; it finished the year with a cash on hand of $34.37 billion.
Baidu analyst Colin Sebastian shared the following remarks about Alibaba Group Holding Limited (NYSE:BABA) in May:
Alibaba is focused on recapturing e-commerce market share in China, and capitalizing on momentum in international commerce and cloud computing building on strong growth in cross-border volumes, and accelerating revenues in public cloud.
It is one of the best undervalued stocks to buy according to Reddit. This is seconded by Insider Monkey’s hedge funds data for Q1 2024, with 103 hedge funds bullish about the company.
Overall BABA ranks 2nd on our list of the best undervalued stocks to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of BABA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
