Alibaba (NYSE:BABA) is at an all-time high. After middling around in the early summer, Alibaba stock broke out in early July and it hasn’t looked back. But at the time of this writing the stock is up over 11% since the e-commerce giant reported earnings on August 20. That has some investors wondering if Alibaba might be ready to take a pause.
If you put any stock in stochastic indicators like the relative strength index (RSI), there might be a case. Alibaba is sitting at an RSI of 76, which is getting on the uncomfortable side. And stocks don’t move in the same direction all the time.
However, the smarter play may be to buy Alibaba now and ride it on the way up. And where is that? Luke Lango recently made an educated guess and gave Alibaba stock a 12-month price target of around $310.
At the time Lango wrote his article, Alibaba was trading around $268. Now it’s almost at $290. So, the 20% gain from $268 is now down to about 7.5%. Still, if you’re looking for a “buy on the dip” possibility, you may be waiting for some time.
Welcome to the Hang Seng Index
Alibaba recently received approval to become a constituent stock of the Hang Seng Index beginning on Sep. 7. Alibaba, along with Xiaomi (OTCMKTS:XIACF) will be the first companies with weighted voting rights (WVR) or a secondary-listing in the Hang Seng index. This will allow any exchange-traded fund (ETF) with at least $20 billion of assets and is tracking the Hang Seng to invest in these companies.
The move is a clear signal that Hong Kong is looking for technology stocks to play a more prominent role on the index. And perhaps an example of political gamesmanship as the United States threatens to delist Alibaba and other Chinese stocks from U.S. exchanges.
Tensions Will Simmer for Awhile
The relationship between the United States and China is being fueled by red hot rhetoric. But as the calendar moves to fall, the temperature between the two nations should start to simmer. In the first place, the one benefit of a presidential election is that neither political party is inclined to do anything. So, despite anything you hear on the campaign trail, nothing will happen until after the election.
And after the election, any talk of delisting will be a tale full of sound and fury, signifying nothing (I’ll leave it up to you to decide if the tale is told by an idiot).
If you take away anything from this, it’s that the United States and China will be making nice for the foreseeable future. That means you can look at Alibaba for the company it is. And there’s a lot to like.
Alibaba Stock Is Still Growing
One similarity between Amazon (NASDAQ:AMZN) and Alibaba that is worthy of note is that neither company pays a dividend. And there’s a reason behind that. Both companies are still growing. In the case of Alibaba, its core e-commerce business is the only business unit that is turning a profit.
But like Amazon, it’s using the strength of that business to push into other areas. This includes the cloud, digital media and entertainment just to list a few. And let’s not forget how embedded Alibaba is in Chinese culture. The United States talks about the “Amazon effect” on the retail market. And it’s very real. But there are many more e-commerce outlets for U.S. consumers. In China, Alibaba, JD.com (NASDAQ:JD), and Pinduoduo (NASDAQ:PDD) serve as the consumer’s primary e-commerce outlets.
And with that in mind, you can probably ignore an RSI of 76 (Amazon’s is 70 as of this writing, by the way) and buy Alibaba for the stock it’s going to be for the next ten years.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
