It seemed like 2020 was going to be a good year for Alibaba (NYSE: BABA) stock. The e-commerce giant entered the New Year on a high note, with its sales up more than 38% in its quarter that ended in December and its net income reaching $7.2 billion.
But then the novel coronavirus wreaked havoc on the global economy, and economic activity significantly decreased. China was the first country to deal with the pandemic, and now it’s finally recovering from the virus and getting its economy up and running again.
Even still, things have not been looking good for China this year, and Chinese stocks are probably not at the top of most investors’ wish lists. But Alibaba may be the exception to the rule.
Alibaba stock is still considered a strong buy on Wall Street, as analysts, on average, think it can jump more than 20%. Here are four reasons why the company is still a good investment in 2020.
1. Alibaba Is a Leader in Cloud Computing
The coronavirus has created problems for many industries, while others have experienced unprecedented demand. With millions of people staying home and working remotely, there has been stronger demand for cloud computing services.
Alibaba is a leader in the cloud computing industry, particularly when it comes to healthcare. In March, the company announced that it would use its AI platform to support efforts by healthcare professionals to fight the coronavirus. The data gleaned from Alibaba’s AI platform could help make testing for the virus more effective and predict the probability of coronavirus patients developing different types of pneumonia.
The company still lags behind companies like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in terms of cloud market share, but Alibaba’s cloud business is growing. At the very least, the company’s cloud computing revenue should help it withstand the blow from the coronavirus.
2. The Company Continues to Outperform the Market
Most Chinese stocks have taken a major hit in recent months, but Alibaba stock continues to hold its own. The shares are little changed since the beginning of the year, but they have outperformed the stock markets.
3. Optimism Is High When It Comes to Alibaba Stock
Most analysts seem pretty optimistic about Alibaba. Of the 19 analysts currently following the stock, every one of them has given Alibaba stock a “buy” rating. And according to Raymond James analyst Aaron Kessler, the company’s growth should resume by June.
4. The Coronavirus Could Provide Alibaba With New Opportunities
Alibaba is unique in that its third quarter actually ended in December 2019. Its fourth-quarter earnings are expected in May, and the company’s revenue will undoubtedly take a hit due to the coronavirus.
This is something that CEO Daniel Zhang hinted at during the company’s most recent earnings conference call. But he also pointed out that the e-commerce industry experienced a boom after the SARS outbreak in the early 2000s.
“We believe that adversity will be followed by change in behavior among consumers and enterprises and bring ensuing opportunities. We have observed more and more consumers getting comfortable with taking care of their daily living needs and working requirements through digital means. We are confident in the ongoing digitization of China’s economy and society and are ready to see the opportunity to build the foundation for the long-term growth of Alibaba’s digital economy.”
While the coronavirus has caused its share of problems for the global economy, it will also create new opportunities, particularly for the e-commerce industry. And there are many signs indicating that the Chinese economy is already beginning to recover.
Once China is able to settle into its new normal, companies like Alibaba will likely find more opportunities than ever.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
