Alibaba (NYSE:BABA) stock has held up relatively well in a chaotic 2020. Alibaba stock’s 5.3% year-to-date gain is nothing to get excited about. However, there are at least three potential bullish catalysts that could make for a big second half of the year for BABA investors.
The first potential catalyst to love about the stock is its technical picture. This week, Alibaba closed above $220 for the first time since February. It also closed above its April and May peaks. Since the initial novel coronavirus sell-off in March, BABA shares have been making a series of higher highs and higher lows, a textbook market uptrend.
This week’s breakout seemingly has Alibaba positioned to re-test its all-time high of $231.14 from back in January in the near-term.
Alibaba’s underlying business fundamentals have been extremely strong, as well. While the company is not immune to Covid-19, it had an impressive fiscal fourth quarter. Alibaba reported $1.30 in adjusted earnings per share, up 2% from a year ago. Revenue was up 22% from a year ago and 7% ahead of consensus analyst estimates. Alibaba’s cloud revenue was up 58%.
Alibaba has 960 million active customers. That’s roughly three times the entire population of the U.S. Alibaba is often compared to Amazon (NASDAQ:AMZN) because the two companies are in similar businesses. But their growth numbers certainly aren’t similar. Amazon’s trailing 12-month revenue growth is 209% in the past five years. Alibaba has more than double that growth rate at 460%. Yet AMZN stock is up 521% in that stretch compared to just a 155% gain for BABA stock.
No Delisting BABA Stock
It’s no coincidence Alibaba’s all-time highs in January coincide almost perfectly with the signing of the phase one trade deal between the Washington and Beijing.
As soon as the worst of the trade war and coronavirus outbreak headwinds had passed, Alibaba was hit with more bad news. In late May, the Senate passed the Holding Foreign Companies Accountable Act (HFCAA). The bill would require Alibaba and all other U.S.-listed Chinese stocks to verify they are not controlled by the Chinese government. Alibaba would also have to submit its financials to Public Company Accounting Oversight Board’s (PCAOB) audits for three consecutive years.
It’s not necessarily the audits that are the problem for Alibaba. I’ve written before that China’s Communist Party, at the very least, is likely a heavy influence on Alibaba. I’m sure it does the same with all major Chinese companies.
A lot of U.S. investors are freaking out about a potential delisting of BABA stock. I say it’s unlikely to actually happen.
First of all, losing Alibaba and other Chinese stocks would cost Wall Street stock exchanges, brokers and investment banks millions of dollars. They would lose trading fees, underwriting fees and other income.
“Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States,” Harvard Law School professor Jesse Fried said.
Fried said the House may not even bring the bill up for a vote. Voting against it would make representatives look weak on China. But voting for it would anger their deep-pocketed Wall Street donors. I think people may be underestimating how much of an impact the investment community has on U.S. politics. When it becomes clear to investors that BABA stock isn’t going anywhere, it could trigger a relief rally.
Investors generally see Republican policies as better for the stock market than Democratic policies. However, stocks have historically performed better under Democratic presidents than Republican ones. Natixis Investment Managers recently found that since 1976, U.S. stocks have gained an average of 14.3% a year when a Democrat is in the White House versus only 10.8% when a Republican is in the Oval Office.
But when Donald Trump is the Republican and Alibaba is the stock, that’s a unique situation.
The trade war isn’t really a Democrat or Republican issue. It’s a Trump issue. If Joe Biden is elected, trade war rhetoric will surely die down. The relationship with China will hopefully improve, eliminating uncertainty and risk for Chinese companies.
The PredictIt market currently suggests a 60% chance Democrats will win the White House in November. In a year full of bullish catalysts for BABA stock, a Biden victory could be the biggest one of all.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. He is the author of the book Beating Wall Street With Common Sense, which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long BABA.