O’keefe Stevens Advisory, an investment advisory firm, released its second-quarter 2024 investor letter. A copy of the same can be downloaded here. Ongoing expectations of near-term rate reduction drove a 3.9% gain in the S&P 500, and companies like Nvidia led this. In the first half, Microsoft, Alphabet, Amazon, and Meta increased by more than 10%. Approximately 63% of the S&P 500’s first-half surge was driven by just five equities, with Nvidia accounting for almost half of that total. In addition, please check the fund’s top five holdings to know its best picks in 2024.
O’keefe Stevens Advisory highlighted stocks like Alibaba Group Holding Limited (NYSE:BABA), in the second quarter 2024 investor letter. Alibaba Group Holding Limited (NYSE:BABA) provides technology infrastructure and marketing reach. The one-month return of Alibaba Group Holding Limited (NYSE:BABA) was 3.86%, and its shares lost 19.31% of their value over the last 52 weeks. On July 22, 2024, Alibaba Group Holding Limited (NYSE:BABA) stock closed at $76.64 per share with a market capitalization of $182.097 billion.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
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…” (Click here to read the full text)
An e-commerce platform displaying a wide range of products to customers online.
Alibaba Group Holding Limited (NYSE:BABA) is in 23rd position on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 103 hedge fund portfolios held Alibaba Group Holding Limited (NYSE:BABA) at the end of the first quarter which was 116 in the previous quarter. Alibaba Group Holding Limited’s (NYSE:BABA) consolidated revenue for the quarter was RMB 221.9 billion, a 7% rise from previous year’s same quarter. Consolidated adjusted EBITDA dropped by 5% to RMB 24 billion, while non-GAAP net income fell by 11% to RMB 24.4 billion during the quarter. Alibaba recently started investing in some AI initiatives aggressively but we don’t think it is leading the pack. While we acknowledge the potential of Alibaba Group Holding Limited (NYSE: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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Alibaba Group Holding Limited (NYSE:BABA) and shared best undervalued stocks to buy according to Reddit. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
