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A Unique Way To Play Alibaba Group Holding Ltd (BABA) News

Tom Taulli

Alibaba Group Holding Ltd (NYSE:BABA) has staged a massive rally this year, with the shares more than doubling, adding a staggering $228 billion to its market cap! This is actually more than the valuations of Netflix, Inc. (NASDAQ:NFLX) and NVIDIA Corporation (NASDAQ:NVDA) combined.

A Unique Way To Play Alibaba Group Holding Ltd (BABA) News

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Yet, there are nagging questions. Can the good Alibaba news continue? Is the stock price too expensive right now?

Perhaps so. But, then again, there are other ways to play the Alibaba news –that is, by looking at its partners. In other words, such companies are likely to see strong growth as well.

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Just look at Weibo Corp (ADR)(NASDAQ:WB). Back in 2013, BABA invested $586 million in the company for an 18% stake. Since then, the shares of WB have been on a big-time bull run, going from $20 to nearly $100.

OK then, so what might be some of the other companies that may benefit from the positive Alibaba news cycle? Well, one interesting choice is BEST Inc (ADR)(NYSE:BSTI). Since 2014, Alibaba has made multiple investments in the company, amassing an equity stake of 23.4%.

So what does BEST do? It’s a multi-sided platform in China that blends technology, integrated logistics and supply chain services for both B2B and B2C companies. For example, a customer can get help with cross-border management, real-time bidding and sourcing for truckload capacity.

While there are many players in the market, BEST has been investing heavily in R&D, such as with data analytics, machine learning and AI (artificial intelligence). Such technologies can be game-changers in today’s competitive markets.

Here’s a look at some of the key metrics:

  • BEST has a roster of over 500 corporate customers, including biggies like 3M Co (NYSE:MMM).
  • The company has express service in all of China’s provinces and cities as well as 98% of the districts and counties.
  • BEST has a global footprint, which includes warehouses in the US, Germany, Australia, Japan and Canada.

Unfortunately, the strong Alibaba news hasn’t done much for BEST stock — at least not yet. Note that the company recently came public but the offering price was well below the initial range. What’s more, the shares have been choppy in the aftermarket.

Then again, volatility with IPOs is nothing new. Besides, one of the issues for BEST is there have already been a variety of Chinese logistics operators that have come public, like ZTO Express (Cayman) Inc (ADR)(NYSE:ZTO), so it is easy to get lost in the noise.

Alibaba News, BEST IPO and BABA Stock

I’ve been bullish on Alibaba Stock for some time. Besides having a powerful e-commerce business, there is also the fast-growing cloud and entertainment segments. During the latest quarter, revenues surged by 56% to $7.4 billion and the cash flows came to $3.7 billion. Keep in mind that the platform has 466 million active consumers.

Although, in light of the recent surge in Alibaba stock, I would urge some caution. It would not be surprising to me to see a pullback.

In the meantime, the fact is that BEST is likely to continue to grow at an explosive pace. During the first half of this year, revenues have spiked by 133.5%. It certainly helps that the company has a strategic relationship with BABA, which is the largest e-commerce company in China.

Something else: According to iResearch, the supply chain management market in China is expected to jump from $417 billion in 2016 to $1.22 billion by 2021. In other words, it’s a pretty good bet that the growth will continue for some time for BEST.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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