Alibaba (NYSE:BABA) stock is the biggest mistake in my current portfolio. At its current price of just under $163, the shares are down by nearly half from their October 2020 peak. The highly publicized Chinese tech crackdown has hit it harder than any of the country’s other successful companies. It wiped out $344 billion in market cap.
But Alibaba is taking on a new role. It’s becoming the “good cop” face of China to the world. By investing heavily in cloud, trade and even overseas companies, Alibaba is breaking the chains of its home country and creating a new path to growth.
Investors are starting to pay attention. Charlie Munger of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is one. The University of California is another. The crowd at Tipranks hasn’t given up, as 19 of 21 still say buy it.
What do we see that the market doesn’t?
For starters we see a cheap stock. Alibaba now sells for just 19x earnings. That’s even cheaper than Meta Platforms (NASDAQ:FB) (uh, Facebook), which sells at 24x. Yet the two companies have comparable profit potential in the cloud.
Alibaba stock is even cheaper now because it delayed its quarterly earnings date from Nov. 8 to Nov. 18. But the earnings should still be fine, about $1.50 per share of net income on $32 billion in revenue.
The numbers will come out after Alibaba’s Singles Day, a made-up shopping holiday that brought in $74 billion last year. The day is being closely examined by sinologists eager to see how Alibaba will obey President Xi Jinping’s new strictures for “common prosperity.”
But that’s not the Xi policy you should be looking at.
The Export Machine
Alibaba is becoming the center of China’s efforts to export economic influence.
Alibaba is now extending the services that gave Chinese producers a global market to Pakistan. It’s investing in South Asian logistics start-ups like Singapore’s Ninja Van, which handles some last mile deliveries for Alibaba’s Lazada. It’s also opening new cloud data centers in South Korea and Thailand. Alibaba has nearly twice the cloud market share in the Asia Pacific regional as Amazon (NASDAQ:AMZN)..
Alibaba is also competing directly with the Amazon store in Europe. It’s one of the top three e-commerce sites for eastern Europe. Amazon isn’t even in the top 10 there. This year’s Singles Day will be celebrated in Europe as well as China.
In the U.S., Alibaba’s home page features an online trade show. The events have attracted over 10 million buyers. Alibaba began, remember, as a b2b site. Alibaba is coming to America with new tools and a $500,000 grants program. JPMorgan Chase (NYSE:JPM) is handling payments by U.S. credit cards on its platform.
There are even hints of a changing government attitude. Alibaba may become the rescuer for Tsinghua Unigroup, the troubled Chinese chip company. Half the stock in the group is held by Xi’s alma mater, Tsinghua University.
The Bottom Line for BABA Stock
If you hate China, and China’s government, feel free to keep hating BABA stock.
But the world isn’t that black and white. It’s mostly green. Jack Ma is still a member of the Chinese Communist Party, now holding its regular plenary session. Co-founder Joseph Tsai still owns the Brooklyn Nets.
It never made sense to me that Alibaba would be kept down simply to demonstrate the might of the party. It makes a lot of sense that Alibaba, having becoming a major Chinese cloud stock, might be unleashed to take on America’s cloud companies.
On the date of publication, Dana Blankenhorn held a long position in AMZN and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.