Why a Trade War Is Good for Alibaba Investors
We could be on the verge of a major trade war with China that could involve as much as $100.0 billion in U.S. tariffs on Chinese goods (and vice versa). Of course, my view on trade wars is negative, but, for investors, it could translate into a mammoth buying opportunity in generational stocks, including Alibaba Group Holding Ltd (NYSE:BABA), which was trading at a record $206.20 in January.
Many of you know that I have been firmly entrenched in the BABA bull camp since the $80.00 level, and here we are still up over 100%, despite the recent selling.
Just like my recent commentary on the Donald Trump versus Amazon.com, Inc. (NASDAQ:AMZN) battle, my view is that the bull case for BABA stock remains intact, albeit we will likely see swings in the stock price, especially if a trade war surfaces.
Alibaba stock has been underperforming Amazon and the Nasdaq over the past year, as well as on a year-to-date basis. BABA stock is down two percent this year and down 10% over the past month. Amazon is up 23% this year, so, in my view, there is an aggressive opportunity to accumulate BABA stock if the discounts get deeper.
My contention on investing is that I look to the long term. If the fundamental picture doesn’t materially change, I would stick with stocks such as Alibaba and Amazon, despite short-term market uncertainties.
The reality is that Alibaba will be around for a long time, and it should continue to expand with innovation and key acquisitions into growth segments that can be marketed to the company’s 500 million users.
For instance, Alibaba is moving deeper into the massive Chinese auto market after venturing with Ford Motor Company (NYSE:F) to test a car vending machine that enables someone to easily buy a Ford vehicle via the machine.
Alibaba is also diving into the massive ride-hailing market in China and is currently looking into a potential investment in Grab, a major ride-hailing service in Southeast Asia.
It’s these kinds of innovative ventures that make Alibaba a great long-term story.
And then there’s the growing cloud services business that has so much more room to grow.
Why BABA Stock Is at a Precarious Level
On the chart, BABA stock is currently straddling key technical support at around $165.00, and that has been in place since August 2017.
Alibaba stock has declined below its 50-day moving average and has just broken south of its 200-day moving average, so there is real concern of further weakness.
Chart courtesy of StockCharts.com
The problem is that the relative strength is weak and the moving average convergence/divergence (MACD) is displaying a “sell” signal. What makes the situation a concern is that there is no solid support until the $125.00 level, where BABA stock staged an upside trading gap.
My view is that Alibaba stock could face more selling if the threat of a major trade war with China holds. The situation will worsen if a trade war comes to fruition.
For those with a long-term view, I believe that the China bull story remains intact and I see opportunities to accumulate BABA stock during the chaos.