3. Alibaba Group Holding Ltd – ADR (NYSE:BABA)
Number of Hedge Fund Investors: 103
Jim Cramer in a recent program yet again reiterated his claim that Alibaba Group Holding Ltd – ADR (NYSE:BABA) is the “cheapest stock in the world.” Cramer said that David Tepper, “one of the greatest investors, believes this too.”
Cramer recommended investors to hold on to Alibaba Group Holding Ltd – ADR (NYSE:BABA).
“I am not being aggressive, but you have to hold.”
UBS is bullish on Alibaba Group Holding Ltd’s (NYSE:BABA) exposure to AI because of Alibaba Cloud, or Alibaba Cloud, which makes the Chinese company a formidable player in the AI enabling layer. In the intelligence layer, UBS highlighted Alibaba Group Holding Ltd’s (NYSE:BABA) Qwen large language model, while the Qwen agent makes the company’s presence notable in the application layer.
However, uncertainties in China and Alibaba Group Holding Ltd’s (NYSE:BABA) lackluster performance have damaged the sentiment around the stock. While Alibaba Cloud is a significant player in the market, analysts believe enormous growth and advancements of Alphabet, Amazon and Microsoft in the public Cloud markets have left Alibaba Group Holding Ltd (NYSE:BABA) behind. Wall Street analysts expect Alibaba earnings to grow at a CAGR of just 1.7% only over the next five years. Alibaba Group Holding Ltd’s (NYSE:BABA) forward PEG ratio is 3.29, which is high when we incorporate the unimpressive earnings growth expectations.
Alibaba Group Holding Ltd’s (NYSE:BABA) ecommerce business is also struggling as buyers in China become price-conscious amid a broader slowdown. However, Alibaba Group Holding Ltd (NYSE:BABA) bulls believe the stock could rebound if the situation improves in the country, given the company’s massive cash flow position. Alibaba Group Holding Ltd (NYSE:BABA) finished fiscal 2024 with a whopping $34.37 billion in cash on hand, with another $36.42 billion in short-term investments.
In May, Baidu analyst Colin Sebastian said in a note after Alibaba Group Holding Ltd’s (NYSE:BABA) quarterly results that the company was gaining “early momentum” as it changes its priorities.
“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,” the analyst said.
Sebastian has an Outperform rating on the stock and an $85 price target.
Artisan Select Equity Fund stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its first quarter 2024 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) 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.”
