Alibaba (NYSE:BABA) is making new all-time highs heading into November, and for good reason. Alibaba stock has several bullish catalysts ahead in the near future, starting with the upcoming Ant Financial IPO.
After the Ant Financial IPO, Alibaba investors will turn their attention to the US election as the stock’s next bullish catalyst.
Third-quarter earnings are up next in early November. And while many hot stocks could potentially get derailed by another wave of coronavirus infections, Alibaba is one of the few that has actually benefited significantly from the pandemic.
Here are all the reasons why investors should be buying Alibaba stock even at all-time highs.
Alibaba Stock and Ant Financial
Ant Group is a Chinese financial technology company that is on track to conduct the largest IPO in history in the next week or so. It is reportedly raising a record $34.5 billion at a valuation of $313.37 billion.
Ant has long been described as an “affiliate” of Alibaba. Ant owns Alipay, one of China’s most popular digital payment platforms. Alibaba holds a 33% stake in Ant Group, so it’s easy to see why that IPO valuation is important.
At a valuation of $313.37 billion, Alibaba’s 33% stake is worth about $104.5 billion. That valuation is roughly 12.1% of Alibaba’s total market cap.
If Ant shares pop 10% on their first day of trading, that means the value of Alibaba’s stake rises by $31.3 billion. Of course, there’s no way of knowing what Ant shares will do when they begin trading.
Reuters reported that Ant’s IPO order books were oversubscribed about one hour after shares were made available to Hong Kong institutional investors. If that institutional demand is any indication of the type of retail demand Ant will see for its dual Hong Kong and Shanghai shares, Alibaba stock could be in for a wild ride.
Alibaba and the Election
The next major bullish catalyst ahead for Alibaba stock is the U.S. election. Of course, any election prediction must first come with a caveat that polls and online gambling markets were completely wrong ahead of the 2016 election. That being said, Democrat Joe Biden currently has a 63% chance of winning the election, according to online prediction market PredictIt.
But the bull case for Alibaba stock has virtually nothing to do with Biden and everything to do with President Donald Trump.
For better or worse, Trump has chosen to make his trade war with China a centerpiece of his administration. From imposing tariffs on Chinese imports to threatening to delist Chinese stocks to potentially blacklisting Ant Financial, Trump has created chaos for Chinese stock investors.
I’ve gone on the record saying I doubted that Trump would actually delist Chinese stocks or blacklist Ant Financial. So far I have been right. But the constant threat of a negative Trump tweet and the unpredictability of his policies have created an overhang for Alibaba stock.
Biden doesn’t need to cozy up to President Xi or even eliminate the tariffs that Trump has already imposed. All he needs to do is win the election to eliminate a major headache for Alibaba stock investors.
It remains to be seen if the pollsters get the 2020 election as wrong as they got 2016. But so far so good for Alibaba.
Alibaba Benefits From the Pandemic
In the first two trading days of this week, the S&P 500 dropped 2%. The primary driver of the negative trading action has been a spike in US coronavirus cases to record daily highs. In that same two-day stretch, Alibaba stock is up 2.3%.
First, China seems to have handled the pandemic much better than the U.S. has. China’s number of daily coronavirus cases peaked back in February and hasn’t been above 100 since August. Sure, you can debate the trustworthiness of those numbers. But on the surface, China seems to have things under control.
But even if a worst-case scenario breaks out in China and cases spike in the winter months, Alibaba’s business is actually a major social distancing winner.
At the same time the S&P 500 was tanking this week, Amazon (NASDAQ:AMZN) shares were up 2.4%. Why? Amazon’s two primary businesses, e-commerce and cloud services, both see an increase in demand during a lockdown. In fact, Amazon shares are up 77.6% year-to-date.
As I said back in April, Alibaba is the e-commerce and cloud services leader in China, and it is a pandemic winner. Since that time, the stock has proved me right by gaining 61.2% in under seven months. At best, Alibaba is a winner of another coronavirus outbreak in China. At worst, it’s immune from potential coronavirus downside.
On the date of publication, Wayne Duggan held a long position in BABA.
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.
