Alibaba (BABA) runs an expansive e-commerce platform in China. I am bullish on the stock.
At long last, BABA stock is showing signs of life. It hasn’t been easy to stay the course with Alibaba, as the bearish sentiment has been widespread for most of 2021.
The same could be said about Chinese stocks in general. Yet, true contrarians understand that the best time to add to one’s position is during times of peak pessimism.
No one knows for certain whether the turnaround in BABA stock will persist. Still, a well-known investor seems to be leaning bullish on Alibaba now, and his position is well-justified.
A Quick Look at BABA Stock
The rout in BABA stock has presented a major challenge for loyal shareholders.
When the stock hit a short-term high of around $270 in February, the runway appeared to be cleared for higher prices.
Unfortunately, a difficult summer would ensue as BABA stock slipped below $200. By early October, the share price had slumped to $140.
On the other hand, there may be a turnaround in progress. In late October, the buyers had recaptured $175.
Will this price bump maintain its momentum? We can’t ignore Alibaba’s problems, but at the same time, the worst might finally be over.
Jack’s Back
Among the negative events that impacted Alibaba in 2021 were the Chinese government’s crackdowns on the nation’s businesses (especially related to perceived monopolies and cybersecurity threats), as well as people wondering about co-founder Jack Ma’s status.
Ma went missing (or at least, was out of public view) for a while, but thankfully, he has surfaced and seems to be doing well.
Now, there’s no way to predict whether the Chinese government will ease up on its regulatory crackdowns.
At least we can say, however, that Ma was allowed to fly abroad recently. Apparently, he was in Spain for an agriculture and technology study tour related to environmental issues.
Even though Ma isn’t Alibaba’s chairman anymore (he retired from that role in 2019), he’s still quite famous and is associated with Alibaba in people’s minds.
Alibaba’s stakeholders should view Ma’s Spain trip in a highly positive light. It tends to suggest that Ma’s actions and movements aren’t being constrained by the Chinese government – and just maybe, the regulators are loosening their grip a little bit.
Munger Doubles Down
While this is not a reason by itself to take a position in BABA stock, it’s nice to know that a famous investor is increasing his stake.
That investor is Warren Buffett’s famous friend, Charlie Munger. You might know Munger as the vice-chairman of Berkshire Hathaway (BRK.B).
An SEC 13-F filing reveals that during 2021’s third quarter, Daily Journal Corp. (DJCO), which is led by Munger, nearly doubled its stake in Alibaba.
With this addition, Munger’s company held over 300,000 shares of Alibaba ADRs (American Depository Receipts), while raising the stake above the $50 million mark.
While we can’t read Munger’s mind as to why his company doubled down on BABA stock/ADRs, there is a quote that might offer a clue.
“The Chinese government will allow businesses to flourish,” Munger predicted in March.
“They changed communism. They accepted Adam Smith and added it to their communism and now we have ‘communism with Chinese characteristics’, which is China with a free market and a bunch of billionaires,” Munger added.
In other words, Munger is citing a historical precedent in support of his view that China’s government will, sooner or later, ease up its pressure on companies like Alibaba.
Wall Street’s Take
According to TipRanks’ consensus rating, BABA is a Strong Buy, based on 23 Buy ratings, one Hold rating, and one Sell rating. The average Alibaba price target of $243.57 implies 40.7% upside potential.
The Takeaway
It’s been a rough year for Alibaba and for the company’s stakeholders.
Yet, Ma is apparently moving freely and Munger is increasing his stake in BABA stock/ADRs.
So, like Munger, we can be patient and use history as our guide to what might happen in the future.
That’s a sound investing strategy – no surprise there, as it’s coming from a living legend.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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