In case you didn’t hear, Alibaba (BABA) is coming public sometime thing morning.
The truth is, unless you get an allocation of shares at the IPO price or have a massive legacy stake in the company you need to partially liquidate you probably shouldn’t trade Alibaba at all tomorrow. Beyond the intrinsic risk of the company structurally, the nakedly artificial supply constraint created by investment bankers and the opaque nature of the financials the fact is trading heavily hyped IPOs is a tough way to make money.
The buzz surrounding Alibaba is a strange mix of institutional excitement and public apathy. Unlike a year ago it’s not uncommon to get asked for stock tips (don’t bother… tips are for waiters). The public appetite for stocks is clearly stronger than it has been for years but Alibaba doesn’t have the same level of chatter surrounding it that Facebook (FB) or even Twitter (TWTR) had.
Maybe it’s the strange and tangled history of the company. More likely it’s the unfamiliarity of the American public with “the Amazon / eBay / PayPal of China.” Perhaps it’s a little bit of both of those and the fact that both Twitter and Facebook took a chunk out of retail investors’ wallets. Whatever the cause Alibaba will be coming out hot and unpredictable. That’s a nice combination for a rodeo but a not a trading thesis.
“I believe it’s oversubscribed by perhaps a factor of 10," optionMONSTER's Jon Najarian says in the attached video. "Most IPOs that are popular like a Twitter situation are probably 6 to 8, so this is going to be a true feeding frenzy, there’s more demand than there is supply.”
Mom and pop will likely not get a piece of the action, because Wall Street will be gobbling them up. “[Alibaba] does have a very sophisticated institutional group that needs to be in this name because its going to be in the $170 billion market cap range, so you can’t ignore it if you’re an institution.”
Price Target: if shares settle in the $80-84, Najarian will hold half the shares. If it goes over $90, Najarian predicts he will “be out of it for our wealth management clients.”
That’s how he’s playing it. My strategy is to sit back and watch the show. Let us know what you’re doing with the Alibaba IPO in the comment section.
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