Alibaba has surged so far in 2023. Is it still a buy here?
Shares of the Chinese tech giant Alibaba BABA have recorded a great start to 2023, adding to strength seen in the final months of last year. The stock is bouncing back from a weak 2022 as investors bet on a rebound in China, as the country emerges from its zero-COVID sluggishness.
Given the runup already, does BABA have more room to advance or has the China optimism been priced into the stock?
Surging Stock Price & China’s Reopening
Alibaba has drawn a lot of investor attention in 2023. The stock jumped 21% in January, rising from $91.11 as the year started to a level at the end of the month of $110.20.
This added to gains seen in Q4 of last year after shares hit their 2022 lows on Oct. 24, touching $58.01. Since that trough, the stock has surged 86%.
BABA’s price explosion has been fueled by an about-face move by the Beijing government. Regulators in China have decided to reopen the country's economy, walking away from their long-standing zero-Covid policy.
BABA isn't the only beneficiary of this change in policy. Many other high-profile Chinese stocks have seen their shares rise lately as well. The list includes names like JD.com JD, Pinduoduo PDD, Tencent Holdings TCEHY, Baidu BIDU, and Li Auto LI.
Is BABA a Buy?
Wall Street experts remain very optimistic about Alibaba BABA. A large portion of analysts view the Chinese conglomerate as a Strong Buy. In fact, of the 44 analysts surveyed over the past 90 days, 31 have given BABA a Strong Buy rating, according to data compiled by Seeking Alpha.
Meanwhile, another 9 analysts have labeled the stock as a Buy. That means 40 of the 44 analysts, or around 91%, have a bullish view. The remaining 4 analysts have classified BABA as a Hold. The stock has not garnered any Sell or Strong Sell recommendations.
As of Friday's intraday trading, BABA hovers near $105.93. The average price target on BABA is $145.53 which equates to a 37% topside move from current levels. At the same time, the high-end target predicts shares can reach $219.73 a share. The low-end target has BABA at $74.38 a share.
Looking at Seeking Alpha’s Quant Ratings, which judge a stock on quantitative measures, paint a slightly more conservative picture. The system views the company as a Hold.
Although Alibaba gets an A+ and an A as it pertains to profitability and momentum, the ratings algorithm marked the stock down for valuation and growth. Those areas garnered grades of C- and a D-, repectively.
See a visual breakdown below:
Outlining the case in favor of BABA, Seeking Alpha contributor BeanKounter Capital lists the stock as a Strong Buy and states, "Shares are still attractive at just over 15x earnings, especially considering the company's cash-rich balance sheet and subsidiaries."
Looking at the other side of the argument, fellow SA contributor Danil Sereda, who views BABA as a Hold, wrote: “In global terms, I would like to draw investors' attention once again to the risks that have faded into the background. The initial phase of the rally in Chinese equities is almost done. Hedge fund positioning seems to be consistent with this view."
Sereda added: "In my opinion, Alibaba stock is more likely to fall in case of capital outflow from Chinese stocks."
For investors who may be unsure about Alibaba, but still want exposure to similar stocks, there are ways to take a more diversified approach towards the stock. Exchange traded funds with a heavy concentration towards BABA offer a chance to take advantage of the overall trend, while not concentrating on the individual company.
Currently, Alibaba is owned by 60 different exchange traded funds which each offer differing exposure levels. Here are the five that hold the largest positions in BABA:
- ProShares Online Retail ETF ONLN has a 14.92% weighting in BABA
- Invesco BLDRS Emerging Markets 50 ADR Index Funds Trust ADRE is weighted at 14.47%
- ProShares Long Online/Short Stores ETF CLIX holds a 12.92% weighting,
- First Trust Dow Jones International Internet ETF FDNIprovides a 10.94% weighting
- the Invesco Golden Dragon China ETF PGJ has a 8.52% weighting towards BABA
In other related BABA and ETF news, as Alibaba exploded at the start of 2023, it carried a bunch of ETFs higher with it.