When Alibaba (NASDAQ: BABA) executive chairman Jack Ma said the U.S.-China trade war could last a long time, he did not worry at all. Alibaba is so diversified and so big in China and in markets ex-U.S. that the stock trades at clear bargain levels. Most recently, BABA stock bottomed at $152.85 earlier this month.
BABA stock, whose forward P/E is just 20 times, comparable to that of Baidu (NASDAQ: BIDU) stock and below that of JD.com (NASDAQ: JD), is tied to China’s prospects. The country has broad trading activity with countries besides the U.S. Although the current trade war will disrupt the economy for both countries, China may still prosper with trade among Asian partners, Russia, and Europe.
Alibaba is still in a growth phase. Its secular shift from its dominance in desktop to outsized growth in mobile will fuel revenue growth. Its cloud computing division continues to grow. This is similar to Amazon.com’s (NASDAQ: AMZN) success with AWS which made most of the profits, while the online storefront grew in revenue but not in profits.
Risks
U.S. may put more pressure on China through higher tariffs, if it decides the damage from China ignoring intellectual property rights is too high.
Alibaba is fine regardless of how the trade war plays out. Another president might get voted in for the second term, reversing the anti-trade policies in place. That would bode well for BABA stock.
