Alibaba Stock: Why the China Trade War Is an Opportunity for Investors

alibaba stock analysis
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Trade Escalation Creates Opportunity for Alibaba Stock

The White House has put forth a preliminary tariff on $50.0 billion of China imports and is threatening to increase that to another $200.0 billion and even $500.0 billion. The potential escalation in the trade war is scaring investors of Chinese stocks. My view, however, is that it also creates an opportunity to add on the weakness, including one of my top Chinese Internet stocks, Alibaba Group Holding Ltd (NYSE:BABA).

The current market apprehension of BABA stock has been triggered by rising fears that a China trade war with the U.S. will hurt the economies of both countries.

While the negative impact from a trade war is valid, I also see any major price weakness as an opportunity to buy Alibaba stock.

BABA stock has drifted to the $190.00 level after trading at a record $211.70 on June 5.

Alibaba is up 11% this year, which is in line with the Nasdaq but well below the 53% advance by Amazon.com, Inc. (NASDAQ:AMZN).

On the chart, BABA stock is precariously trading at around $190.00 but could see a retrenchment down toward key support at $180.00 followed by $167.00.

Chart courtesy of StockCharts.com

My view toward Alibaba stock remains bullish in the long term, despite what will likely be short-term volatility.

Why BABA Stock Is Still a Bullish Story

The bull story at BABA hasn’t changed. In fact, it has improved.

Just like Amazon.com, Alibaba (led by co-founder Jack Ma) aims to expand its ecosystem by moving into other growth areas where it could cross-market to its huge user base.

While the U.S. market is a lucrative target for Alibaba, regardless of whether it will pan out or not, the company has its sights on expanding outside its domicile.

Alibaba announced it would acquire a position in Turkey-based online marketplace Trendyol, which serves Turkey and emerging markets in the Middle East and North Africa. These regions are seeing wealth creation, which is why this move makes sense for Alibaba.

In another potentially rewarding venture, Alibaba injected $1.5 billion into China Media Capital as part of a consortium of major technology companies.

The investment could inevitably pay big dividends, as China Media holds interests in entertainment ventures in media, broadcasting, and movie studios.

My view is that there could be numerous avenues for Alibaba to monetize its relationship with China Media, including cross-marketing and other ventures.

Alibaba is a $500.0-billion company with the financial resources to grow its e-commerce business along with its cloud unit, mobile payment platform, and many other segments.

Analyst Take

Don’t be scared off by the trade rhetoric; Alibaba is growing at a staggering rate, especially for a company of its size. Revenues surged 58% in FY18 and Alibaba is predicting growth of 60% for full-year 2019, up from the previous consensus estimates of 39.8%.