Dealmaker’s Diary: East Meets West With This Surprising Tech Play

Alpesh Patel|May 23, 2024

A surprising stock showed up on my GVI radar this week…

It’s an absolute behemoth of a tech stock that is on the ropes. It tanked in 2021 and has been flat since.

The company trades at just 10.5 times earnings… and is nearly 50% undervalued.

Yet it scores a 9 on my proprietary GVI rating system… and hits the mark on my favorite metric.

My research says it’s a turnaround play waiting to double.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

TRANSCRIPT

Welcome to the Stock of the Week. And the big reveal is… Alibaba (BABA).

Now, what’s unusual about this is, first of all, it’s a Chinese company. I’ve picked very few over the last few years, unsurprisingly, given that there haven’t been that many that I particularly liked.

Alibaba is one of the most famous Chinese companies listed, albeit on the New York Stock Exchange. It’s basically like an Amazon for the Chinese market essentially.

And, like Amazon, it’s got other areas like entertainment, cloud computing, etc. It’s got a market cap of $203 billion, and it’s the world’s 60th most valuable company.

It was a heck of a lot higher before the Chinese markets slid and possibly overreacted to the downside.

On my proprietary Growth-Value-Income rating, it scores a 9. Now, remember, 7, 8, 9 or 10 means it meets my minimum criteria, which this one does.

The P/E ratio is 10.5. Given that it’s a tech company like Amazon, can you imagine Amazon trading at a multiple of 10.5 dollars for every future dollar of expected profits? It’s cheap for a tech company, for a Chinese company.

Cash return on capital invested – CROCI – has popped up to 13.2%. Remember, that’s my ratio from Goldman Sachs Wealth Management. You want companies in the top quartile. Click here to see why. So, my CROCI box is ticked as well.

Now… Sortino and Alpha boxes haven’t been ticked.

Sortino is the average return versus downside risk, and Alpha is outperformance of the market. Well, that’s because it’s been declining for quite a while.

So this is more like a turnaround play. Volatility is low though. It’s below 20%, which is also pretty stable for a tech company. It’s about the same volatility as, say, Microsoft.

Now, what does the stock look like? Well, of course, it’s dropped a bucket from, what, over $300 to just $83. It seems to have stabilized, holding at $88-ish. It’s been around the $83 mark, what, over two years. Now it looks like we could get something of a breakout. While that’s been promised in the past, it’s often fallen back, so it remains a risky play.

Looking at the monthly MACD, it does look like a risky play, however, there’s some reason to think this might be a turnaround and this time might be different. Let’s put it that way.

The downward trend that began from the peak in January 2023 all the way down seems to have broken. So there are some positives.

Also, on a discount cash flow basis it’s undervalued, suggesting it could actually be – or should or could be – 100% higher in stock price to get to a fair valuation.

So there you have it. A breakdown of Alibaba… and I know quite a few of you have wanted some kind of Chinese exposure in light of a frothy American market.

Well, this gives you the best of both worlds. A U.S.-listed company but with Chinese exposure.

Thank you very much.