How I'm Handling Alibaba Into Earnings
I'm watching lots of small caps, and this Chinese retail giant stands out on my list.
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Here I'll look at the mixed market action so far on Wednesday and how I plan to play Chinese giant, Alibaba BABA into earnings.
Investors are locking in gains and contemplating how to put more cash to work this morning. Breadth is running about even, but the Magnificent Seven MAGS names are outperforming again, and semiconductors are also helping the bullish cause. Nvidia NVDA has regained its status as a leader.
There is some rollover action, but at this point that is healthy and much needed after a very strong run that has left many stocks technically extended.
I see a number of names that I'm looking to buy on pullbacks, like AST SpacMobile ASTS, ADMA Biologics ADMA, Xeris XERS, Emergent BioSolutions EBS, GeneDx Holdings (WGS), and EOSE Entergy EOSE, but I'm also looking for some new ideas.
While I have limited exposure to big-cap technology, I am taking a look at one of the cheapest names in that group, which is Chinese retail giant Alibaba BABA. Chinese stocks always trade at a discount, but it is surprising how cheap some of them are compared to their U.S. counterparts.
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For example. Alibaba is very similar to Amazon AMZN. Both have large retail businesses, but they also have sizable revenue from cloud computing. Cloud operations are the primary source of growth.
Amazon sells with a trailing price-to-earnings of 34. It is expected to grow earnings per share by 12% in 2025 and 18% in 2026. BABA sells with a trailing PE of 15 and is expected to grow EPS by 4% in 2025 and 10% in 2026. Amazon has an average price target of $240.37 from 48 analysts, which is upside of about 14% from the current price. Alibaba has an average price target of $167 from 16 analysts, which is upside of about 26% from the current price.
On Wednesday morning, Morgan Stanley MS named BABA a "Catalyst Driven Idea." The catalyst is AliCloud, which is BABA's cloud operation. The firm thinks AliCloud is poised to benefit from surging AI demand. Other hyperscalers like Tencent and Bytedance prioritize internal demand, which leaves BABA's AliCloud as "a unique Cloud Service Provider with sizable allocation for external customers." The Morgan Stanley analyst believes upcoming cloud revenue growth will be the next share price catalyst and has an Overweight rating and $180 price target on the shares.
BABA is set to report earnings on Thursday morning prior to the open.
My game plan is to establish a small position prior to the report and then add depending on the outcome of the report and the price action. If a "good" report is sold, I'll be adding aggressively.
I don't see much I want to buy right now, but I'm watching closely and staying patient.
At the time of publication, DePorre was long BABA, ASTS, EBS, XERS, ADMA, EOSE, WGS
