China-based companies have the most to lose while the U.S. and China lack a trade agreement. Uncertainties around it will keep outside investors from buying their stocks. If trade is the biggest risk factor for mega cap stocks in China like Alibaba (NYSE:BABA), is there any trading gains from speculating it?
Alibaba has the best fundamentals, of all the stocks based in the region. It has a moat in online e-commerce, both on the desktop and on mobile devices. It succeeded in shifting its customers towards the mobile channel in the last several years. Realistically, though, the trade war slowed economic activity, hurting Alibaba’s revenue growth in the process.
Valuations for Alibaba stock are unfavorable. The P/FCF is 17 times. This is still lower than Amazon.com’s (NASDAQ:AMZN) 60x but for good reason. Amazon.com grabs market share in the markets it enters. Alibaba’s growth is still susceptible to macro headwinds.
A trade deal with China could happen any time. This would send BABA stock soaring but it would also lift all stocks. Investors could buy JD.com (NASDAQ:JD), buy oil stocks, or even financials and get rewarded all the same.
Alibaba is a pure-play on China’s prospects. Investors who believe a deal will happen sooner than markets expect could speculate on the stock and get rewarded nicely.
