Analysts Predict Massive Rally as Alibaba’s Bottom Appears

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In the current market climate, Chinese stocks are facing a notable disapproval bias, presenting a unique opportunity for savvy investors akin to legendary figures like Sir John Templeton. Despite the market’s skepticism, there are compelling opportunities for Chinese businesses to offer higher returns at significantly lower valuations compared to their American counterparts. Notably, consumer discretionary stocks in China, including Alibaba Group and JD.com, stand out as potential winners, benefiting from the awakening of the Chinese consumer.

Contrary to outdated perceptions of lower quality and reliability, Chinese businesses now boast competitive rates of return and margins, outperforming their American counterparts in many aspects. A noteworthy example is Alibaba, which exhibits a robust net income margin of 9.4% over the past twelve months, almost three times higher than Amazon’s 3.6%.

Despite these favorable fundamentals, market sentiment continues to favor American counterparts, such as Amazon.com (NASDAQ: AMZN), reflecting a prevailing bias against investing overseas. Amazon dominates the price action metrics, overshadowing Alibaba and creating a substantial valuation gap. Alibaba’s current trading at 68.0% of its 52-week high, compared to Amazon.com at 98.0%, highlights a significant disparity that investors can capitalize on.

Alibaba’s management, evidently dissatisfied with prevailing valuations, has initiated substantial share repurchase programs, currently amounting to $16.3 billion remaining until March 2025. This move signals confidence from insiders, underscored by the fact that $3.1 billion has already been allocated to share buybacks in 2023, constituting approximately 9.3% of the company’s market capitalization.

Renowned Wall Street figure Ray Dalio, former head of Bridgewater Associates, has further fueled confidence in Chinese equities, including Alibaba and JD.com. Dalio has strategically invested in the iShares MSCI China ETF (NASDAQ: MCHI), indicating a bullish stance on China’s economic prospects.

While some may shy away from Chinese stocks, anticipating subdued consumer activity due to reported lackluster inflation rates, both Alibaba and JD.com have reportedly experienced significant sales growth in the current quarter. With the upcoming meeting between President Xi and Biden, discussions may revolve around facilitating foreign investment in Chinese businesses, potentially unlocking new opportunities for Alibaba, set to report earnings on November 16.

Analysts express confidence in Alibaba’s future, projecting a consensus price target of $137.0 per share, implying a substantial upside of 65.6% from current prices. Considering the ongoing share repurchases and positive market sentiment, these targets may be subject to upward revisions.

In conclusion, the compelling narrative of China’s largest consumer company trading at a substantial discount, coupled with optimistic projections from analysts and influential figures like Ray Dalio, positions Alibaba as a potential powerhouse. As political discussions lean toward a more capitalistic agenda, the stage may be set for robust earnings and a reversal of market sentiment in favor of Chinese stocks.