Buy And Hold Alibaba Stock for the Long-Term
InvestorPlace - Stock Market News, Stock Advice & Trading Tips After a difficult year, hope is starting to emerge that better days are ahead of Chinese e-commerce giant Alibaba. Investors...
Can Chinese technology giant Alibaba (NYSE:BABA) get its mojo back? That’s the question being asked as the online retailer proceeds with a corporate reorganization and a growing number of influential people on Wall Street name BABA stock a top pick heading into 2022. Yet, it has been an extremely difficult year for the company and its shareholders.
But with the Chinese government continuing to crackdown on the country’s private sector, and technology companies in particular, a cloud of uncertainty continues to hang over Alibaba and other tech concerns.
News that Chinese ride hailing firm Didi Global (NYSE:DIDI) will delist from the New York Stock Exchange sent BABA stock down nearly 10% to a 52-week low of $108.70 on Dec. 3.
Hangzhou, China-based Alibaba just unveiled a significant reorganization of its operations, announcing that it plans to restructure its international and domestic e-commerce businesses and replace its chief financial officer (CFO). The changes come as the leading technology company contends with an onslaught of domestic competition, a slowing Chinese economy and an ongoing regulatory crackdown that shows no signs of abating.
Alibaba says it is creating two new units — international digital commerce and China digital commerce, which is part of its efforts to accelerate growth moving forward. The international digital commerce unit will include “AliExpress” that sells directly to retail buyers, particularly in Europe and South America, its Southeast Asian e-commerce business “Lazada,” and “Alibaba.com” that is focused on selling to overseas business customers.
The international unit will be headed by Jiang Fan, who had previously overseen Alibaba’s main Chinese retail marketplace, and the change is viewed as being in line with Alibaba’s focus on globalization and growing beyond its domestic market.
Alibaba also announced that deputy CFO Toby Xu will succeed Maggie Wu as the company’s main CFO starting in April 2022, describing his appointment as part of the company’s leadership succession plan. Xu has been with Alibaba for more than three years now.
All these major changes come after a bruising year in which Alibaba was singled out for punishment by Chinese authorities.
Late last year, the company’s founder and chief executive Jack Ma disappeared entirely from public view for several months after making some controversial comments at a financial forum. In November of 2020, the company’s planned initial public offering of its financial payments unit Ant Group was canceled. And then, in April 2021, Alibaba was hit with a record $2.8 billion fine for anticompetitive behavior.
These punitive actions have forced Alibaba’s share price lower and lower over the last year. As we enter the final trading weeks of 2021, BABA stock is down 48% on the year at $120.42 per share, and about 55% below its 52-week high of $274.29.
Better Days Ahead for BABA Stock?
In addition to its restructuring, Alibaba is landing on a growing list of stock picks for the year ahead, with top Wall Street analysts naming BABA stock as one of their top ideas for 2022. Investment bank Goldman Sachs (NYSE:GS) continues to be bullish on Alibaba and bought 5.87 million shares of the company in this year’s second quarter, making Alibaba its fifth largest holding.
Additionally, Alibaba recently got a big vote of confidence with New York University’s Aswath Damodaran, who is known on Wall Street as the “Dean of Valuation.” Damodaran said he’s now ready to buy shares of Alibaba at current levels as the stock has become extremely undervalued.
“At the prices at which it’s trading, I think not withstanding all the worries about corporate governance and the Chinese government, I think it’s well positioned to be a long-term investment,” said Damodaran in an interview with CNBC, adding “Let me be quite clear — this is not the kind of stock you want to buy because you want to make money in the next three or six months… I’m going to buy and put it away in my portfolio because I think, long term, it still has the business model to deliver the cash flows that will keep my investment going.”
Of course, the continuing crackdown on China’s private sector and publicly traded companies remains the biggest issue affecting BABA stock.
How much more widespread and severe the crackdown is going to get is not known, but the delisting of DIDI stock, which came at the request of Chinese government officials, clearly rattled markets and sent the price of BABA stock and others down sharply. For now, it appears that regulators in China are focusing their attentions on companies other than Alibaba.
Buy BABA Stock For The Long-Term
There are analysts and commentators who say that investors should avoid Chinese stocks at any and all costs given the unpredictability of the government crackdown. However, it is difficult to ignore the fact that Alibaba’s stock is trading at rock bottom prices right now and that the company’s long-term potential is huge.
Often referred to as the “Amazon of China,” Alibaba remains a leader in all of the markets in which it operates. With its renewed focus on growing internationally and a commitment to outpacing its competitors, Alibaba does indeed remain a compelling long-term option.
However, investors who take a position should be prepared to ride out periods of heightened uncertainty and volatility. BABA stock is a long-term buy.
On the date of publication, Joel Baglole held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.