Sure, Alibaba may have started life as part of a series of stories from a fictional young lady trying to keep her head and neck connected, but Scheherazade's classic character became a lot more than that. It became the central theme around which Chinese mega-corporation Alibaba (NYSE:BABA) got its start. While the company has exploded to prominence over the last few years, recent months have been much tougher on the company. In fact, the company's share price has recently been the subject of a disaster on par with anything the storyteller might have come out with.
An Ongoing Problem?
The latest word out of Alibaba isn't exactly great news. Recent trading saw the company's share price slip to the lowest levels seen since June, and that amid a market that should be exploding: online shopping.
Reports suggest that the biggest problem for Alibaba is that it may be getting too big for regulators' comfort, and the regulators in Beijing tend to take an even darker view of threats than most any other. The company lost better than 13% of its value in Christmas Eve trading, and the latest reports had it starting off today down another 3% on top of it. Recovery was seen in early trading today, but as of this writing, about half of that recovery track was lost, and the stock is currently at $220.03, under the last close of $222 even. Given that the company was trading around $311 two months ago, this is bad news by any stretch.
Analysts Comparatively Unfazed
The notion of a Beijing rampage doing serious damage to Alibaba in the long term, though, seems to be giving the analyst community very little in the way of concern. Our latest research considers the company a “buy”, and the consensus has changed very little in the last six months. Six months ago, the company had one “hold” rating, 25 “buy” and one “strong buy”. Three months ago, that was the same proportion, but with 28 “buy” ratings. Now, we're down to 23 “buy” ratings, though everything else is the same, and that's what we saw a month ago.
The price target is unchanged from last month, sitting at $314.63. Given where the stock is currently trading, that means either a lot of faith in a recovery or a lack of updates. Considering that the last update in price targets came from Barclays back on November 9—that upgraded the company to a $365 price target—it's safe to suggest that a lot of analysts haven't really reconsidered the matter yet.
The Dragons' Rumbling
In recent months, Alibaba has become a much more heavily diversified operation. Under normal circumstances, this is a good thing, and shareholders tend to reward such behavior by parking more cash with such companies. They're safer investments, after all, more likely to turn a profit overall and offer the investor better return on said cash parked therein.
Alibaba has done quite a bit to expand its operations; having started life as a payment processor—it's directly responsible for Alipay, which is the leading mobile payments tool in China ahead of its next closest competitor, WeChat Pay—it expanded into markets that made sense. It became proprietor of some of the biggest online shopping in China, which makes it some of the biggest online shopping period, including places like Taobao Marketplace. Further expansions into healthcare and other operations were poised to make it the direct Chinese equivalent of Amazon (NASDAQ:AMZN).
Indeed, investors flooded in, and Alibaba rewarded accordingly, launching a $6 billion stock buyback programs that was recently expanded to $10 billion. But with Chinese regulators increasingly unhappy—Alibaba's move to take Alipay originator Ant Group public in what would have been the largest initial public offering (IPO) ever didn't help—the specter of antitrust suits and monopoly accusations shadowed the company's gains.
Throw in the very real potential that Alibaba may not be on the NYSE much longer—President Trump recently signed the Holding Foreign Companies Accountable Act, which could result in some companies being de-listed from US exchanges—and that doesn't bode well for Alibaba right now. However, this is still a point to watch. Alibaba is still one of the biggest companies in China, and therefore, the world. It has its fingers in a great many pies out there, and that gives it a measure of safety.
Thus, if you're currently holding Alibaba shares, it's a good idea to keep doing so. Regulatory mindsets change, and if the regulators lay off, the company has lots of room to bring in returns. An expanded buyback program will likely also result in at least short-term gains as well. Be ready, however, to sell off quickly if need be; there are significant potential pitfalls coming with Alibaba shares right now, and those who fail to respond quickly enough could see big losses.
Featured Article: Systematic Risk and Investors 7 Bellwether Stocks Signaling a Return to Normal
Bellwether stocks are considered to be leading indicators about the direction of the overall economy, a specific sector, or the broader market. They are predictive stocks in that investors can use the company’s earnings reports to gauge economic strength or weakness.
The traditional definition of bellwether stocks brings to mind established, blue-chip companies. They are the home of mature brands with consumer loyalty. These may be stocks that aren’t associated with exceptional growth; some may be dividend stocks.
But there’s something different about normal this time around. If it’s true (and I think it is) that the old rules no longer apply, investors need to change the way they think about bellwether stocks. Plus, let’s face it, many stocks that we might consider to be bellwether stocks have already had a bit of a vaccine rally. That means that the easy gains are gone.
With that in mind, we’ve put together this special presentation that highlights seven of what may be termed the new bellwether stocks. These are stocks that investors should be paying attention to as the economy continues to reopen.
One quality of many of these stocks is that they are either negative for 2021 or underperforming the broader market. And that means that they are likely to have a strong upside as the economy grows.
View the "7 Bellwether Stocks Signaling a Return to Normal"
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist