This article is an excerpt from “Barron’s 10 Favorite Stocks for 2024,” published on Dec. 15, 2023. To see the full list, click here.
Alibaba
is one of the cheapest tech-oriented companies in the world—by a long shot.
After dropping 18% in 2023, Alibaba’s U.S.-listed shares trade for just eight times projected earnings in its current fiscal year ending in March. With that decline, the stock, at a recent $72, is back where it stood following its 2014 initial public offering, despite a tenfold rise in revenue and a fivefold increase in earnings. Its market cap is less than 15% of its closest American peer,
Amazon.com.
The company sits on a small mountain of cash, equal to a third of its current market value of $184 billion. Adding in its core Chinese e-commerce unit, its cloud computing and logistics businesses, and a stake in Ant Financial, the sum of the company’s parts comes to about $130 a share, nearly double the current stock price, according to analysts at China Merchants Securities in Hong Kong.
Alibaba isn’t risk-free. It delayed plans for an IPO of the cloud software business due to U.S. chip export restrictions, and faces growing competitive pressures in China. But headwinds from the Chinese government’s crackdown on big tech and a sluggish domestic economy are reflected in the stock, says Steve Galbraith, managing partner of Kindred Capital Advisors.
“At this price, things don’t need to go spectacularly well—or even well—for Alibaba,” he says. “They just need not to get incrementally worse.”
A bigger dividend, now 1%, or larger stock buyback could boost the stock.
Write to Andrew Bary at [email protected]
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