Alibaba Stock Won’t Be Stifled By the Trade War

The long-term bullish call for Alibaba stock still stands

BABA stock - Alibaba Stock Won’t Be Stifled By the Trade War

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Alibaba (NYSE:BABA) stock has been sliding for the last few weeks, its share price shrinking by 8% over the last month despite a slight rebound in the last few days. The main factor for the fall of the Amazon (NASDAQ:AMZN) of China, as many call it, has been volatility in the yuan, China’s currency.

The yuan slumped as the United States continued its trade-war talk and threatened even more tariffs on Chinese goods.

Indeed, the fact that BABA stock offers an easy way for investors to bet on China has long been part of its appeal. In 2017, the second-largest economy in the world announced its best GDP growth in seven years, while per capita disposable income grow by 9% year-over-year, NPR reported.

But the outlook for China has been dampened by the ever-escalating trade war Donald Trump seems set on waging. The aforementioned threat shifted the focus of tariffs from raw materials like aluminum and steel to consumer goods and would mark the third shot fired from the Trump administration.

The concern here isn’t that the tariffs will impact BABA directly; the company’s commerce business is very heavily focused on domestic sales. For the first three months of 2019, the company’s core Chinese commerce accounted for 65% of its revenue. Instead, the concern is that the trade war will slow down China’s economy more broadly, thus affecting consumer spending.

This is a prime example of a short-term blip overshadowing a long-term buy. I have been bullish on BABA stock for some time and believe volatility caused by the trade war and yuan movement should be read as a buying opportunity. There is no substantial change in the company’s long-term fundamentals.

Much like Amazon, Alibaba’s commerce business is complemented nicely by a growing cloud business; during the first three months of the year, revenue more than double for the cloud computing segment. Alibaba also just announced a partnership with Siemens to bring the industrial Internet of Things to China.

Overall, sales for Alibaba are slated to expand by almost 60% this year, with another 40% on tap after that. On the commerce side, the company’s commitment to technology is a key differentiator, including omni-channel shopping like its FashionAI concept store — a partnership with popular retailer Guess.

The average price target from analysts for BABA stock, according to CNN Money, is $235, which represents 25% upside from current levels. Yahoo Finance has the average even higher, at $250. Either way, the consensus is that the change for gains remains.

The trade war is going to continue to dominate headlines. As long as it subsequently dominates investor thinking about Alibaba as well, stay calm and keep an eye out for good entry points, as we’ve seen in the last few weeks. Overall, there’s still a lot to like about BABA stock. The red herring that is the U.S.-China trade war hasn’t erased the fundamental bullish case for buying shares.

As of this writing, Robert Martin was long BABA stock.

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