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Should You Buy Alibaba-Heavy ETFs Right Now?

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Investment firm Bernstein upgraded Alibaba BABA shares recently and believes that they can rally more than 20% from here, as quoted on a CNBC article. Alibaba shares are down 13.5% this year but up 17.2% in the past three months (as of Jul 20, 2022).

Notably, according to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat.

The Alibaba stock currently has a Zacks Rank #3 (Hold) and a positive ESP of 18.93%. The stock is expected to report earnings on Aug 2, 2022.

Investment Rationale

Alibaba Group is represented by three businesses — Alibaba.com, Taobao, and Tmall. The company's businesses account for more than half of all online retail sales in China, which is one of the world’s fastest-growing e-commerce markets. Taobao is one of Alibaba Group’s most profitable marketplaces that generates for more than 80% of its sales, thanks to soaring demand for high-quality imported brands in China.

Alibaba is benefiting from solid momentum in its retail segment driven by its growing China and International E-Commerce businesses. Further, its robust New Retail strategy, which is gaining strong traction in the market, remains a positive. This is aiding growth in Tmall Import, Hema fresh food grocery business and Intime Department Stores.

Alibaba continues to witness increasing monetization rates. It is the amount Alibaba earns from the sale of goods on its platforms. The company’s focus on foreign brands and other high-quality merchants on its platforms continue to increase the online marketing inventory on both mobile and the PC, thus further improving the monetization rate.

Furthermore, Cainiao logistics services are contributing well. Additionally, the company’s strengthening cloud business on the back of its expanding customer base continues to drive its performance. The stock has outperformed the industry it belongs to on a year-to-date basis. China’s intentions to ease crackdown on various sectors, including technology, also bode well for Alibaba.

Valuations

Alibaba’s forward P/E ratio is 14.76X compared with 23.67X of Internet-Commerce industry and 17.45X of the S&P 500. This calls for a compelling valuation. PEG ratio of Alibaba is 0.95X versus 1.20X of the concerned industry and 1.88X of the S&P 500. Price/Book ratio of Alibaba is 1.68X versus 2.03X of the industry and 3.31X of the S&P 500. Earnings Yield of Alibaba is 6.79% versus 1.15% of the industry and 5.71% of the S&P 500.

ETFs in Focus

Against this backdrop, below we highlight a few Alibaba-heavy ETFs that can be tapped amid Bernstein’s upgrade. Basket approach always minimizes stock-specific concentration risks.

ProShares Online Retail ETF ONLN – Alibaba takes 14.27% weight

Invesco BLDRS Emerging Markets 50 ADR Index Fund ADRE – Alibaba takes 10.55% weight

First Trust Dow Jones International Internet ETF FDNI – Alibaba takes 9.60% weight

MicroSectors FANG+ ETN FNGS – Alibaba takes 9.55% weight

Global X Emerging Markets Internet & E-commerce ETF EWEB – Alibaba takes 9.18% weight


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
 
Invesco BLDRS Emerging Markets 50 ADR ETF (ADRE): ETF Research Reports
 
ProShares Online Retail ETF (ONLN): ETF Research Reports
 
MicroSectors FANG ETN (FNGS): ETF Research Reports
 
Global X Emerging Markets Internet & Ecommerce ETF (EWEB): ETF Research Reports
 
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