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Bull of the Day: Alibaba (BABA)

David Bartosiak

Buy when there’s blood in the street. That’s a good motto for the long-term investor, and one that’s absolutely terrifying in the short-term. I could spout out another dozen phrases which mean the same thing here, but the message is the same. So when I tell you that my Bull of the Day here is Chinese online giant Alibaba (BABA), just hear me out before you grab your torches and pitchforks.

In case you’ve been living under a rock, Alibaba provides online and mobile commerce businesses in the People's Republic of China and internationally. It operates in four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. The company operates Taobao Marketplace, a mobile commerce destination; Tmall, a third-party platform; Alibaba Health pharmaceutical e-commerce and consumer healthcare platforms; Alimama, a monetization platform; 1688.com, an online wholesale marketplace; Alibaba.com, an online wholesale marketplace; AliExpress, a retail marketplace; Lazada, an e-commerce platform; and Tmall Global, an import e-commerce platform.

Yes, there is a trade war going on which is sending the world economy careeing towards recession. Alibaba has a tendency to trade as a proxy for Chinese stocks as a whole. When the news surrounding the trade war is negative, Chinese stocks get hammered, and Alibaba sells off. That means there is a ton of risk surrounding this stock. But it also means there is a ton of opportunity.

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote

The stock is currently a Zacks Rank #1 (Strong Buy). That doesn’t mean that a bunch of analysts at Zacks got together and thought it should be bought. It means that analysts across Wall Street have been increasing their earnings estimates for this stock much more than they have been for other stocks. It means the underlying earnings trend is still very strong, despite what’s happening with the trade war and the Chinese stock market. There’s a divergence between the earnings picture and the stock price here. That divergence is where the opportunity lies.

Over the last sixty days, eight analysts across Wall Street have increased their EPS estimates for the current year. Four have done so for next year as well. That bullish sentiment has increased the Zacks Consensus Estimate for the current year from $6.71 to $7.18, while next year’s number has gone up from $8.61 to $8.90. That represents EPS growth of 25.52% for the current year and 23.9% growth for next year. That is also forecast to come on sales growth of 32.09% for the current year and 31.06% for next year. Those are monster numbers regardless of what’s happening with the trade war.

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