Don’t Bite on Tempting Alibaba Stock Yet

Conventional wisdom among contrarians state that you should buy shares of Alibaba Group (NYSE:BABA) now that they’re on discount. Yes, the coronavirus is a serious and tragic outbreak. However, history shows us that all epidemics – even the most horrific ones – eventually fade. Therefore, the fundamentals for Alibaba stock haven’t changed, only the circumstances.

Don't Ignore the Major Threats Facing Alibaba Stock
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Admittedly, this line of thinking attracts many folks. After all, Alibaba stock is up 29% since the first trading session of October 2019. With the U.S. and China coming together to sign a phase one trade deal, the broader environment appears favorable. Thus, the more than 7% discount in BABA seems like a discount prospective buyers shouldn’t ignore.

In addition, other major Chinese names haven’t experienced that much of a decline. For example, shares of rival JD.com (NASDAQ:JD) are up 9% year-to-date. During the same timeframe, Tencent (OTCMKTS:TCEHY) is slightly positive. From this context, the volatility in Alibaba stock implies that this is only a temporary setback.

However, when looking at the facts, I can’t help but wonder if the coronavirus is a completely different animal from prior health epidemics. In the early 2000s, the SARS outbreak infected 8,096 people and killed 774 people globally.

However, at time of writing, the coronavirus has produced 20,400 cases and 425 deaths in China, where the outbreak is most prevalent.

These metrics are enough to send shivers down your spine. Even worse, SARS took about eight months to reach the previously mentioned statistics. The coronavirus outbreak is only a little over a month old. In only approximately 12% of the timeframe, it has already infected 152% more people than SARS ever did.

We May Be Downplaying the Coronavirus Risk to Alibaba Stock

According to a World Health Organization report published in March 2003, the Chinese government a month earlier disclosed 305 cases of SARS and five deaths in Guangdong Province, the epicenter of the respiratory disease. Keep in mind that the first cases of SARS appeared around mid-November 2002.

Thus, in three months, the government “only” had 305 cases, or an average of about 100 per month. We’re over 20,000 cases in roughly 34 days. Although it’s not necessarily accurate to imply that we’ll see similar growth rates over the next few months, you must respect how quickly the coronavirus has spread.

When you bring these data points into the picture, suddenly, the contrarian case for Alibaba stock isn’t so appealing. Most worrisome, though, is the very real possibility that the Chinese communist government could be lying about the real numbers.

According to ForeignPolicy.com’s James Palmer, police snuffed multiple attempts of medical insiders to disclose the true nature of the epidemic. Further, he criticized the Chinese government’s attempt at transparency. Palmer scathingly wrote:

The hostility to transparency and fear of speaking out baked into the fabric of Xi Jinping’s China can’t be thrown away for one crisis. Transparency is not a window that can be opened and shut at the state’s will when it finds it useful.

In other words, the idea that the coronavirus is much worse than reported is not a conspiracy theory. As such, the bad news may not be fully baked into the Alibaba stock price.

Plus, the outbreak might not bolster Alibaba’s e-commerce business like some contrarians might think. I mean, would you want to receive a package that’s gone through multiple hands?

People Gripped with Unreasonable Fear

In a fascinating but also disheartening story, CNBC reported that Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) riders of Asian descent have faced discrimination from drivers. From San Francisco to London, several ride-sharing drivers have complained about or avoided Asian passengers.

I’m not surprised in the least. In my neighborhood, several Asian restaurants are standing room only, with lines spilling out the door. Recently, though, I noticed something amiss when I shopped at local Asian markets: I could actually find parking!

Here’s the takeaway. We supposedly live in a post-racial society. Yet even in this progressive era, workers are willing to lose their livelihood to avoid contact with people of a specific race.

This is happening in the U.S., where we are thankfully far removed from the coronavirus epidemic. Now imagine what’s really happening in China. You want to gamble on Alibaba stock? I think the smartest play is to wait until we get more information.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/dont-bite-on-tempting-alibaba-stock-yet/.

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