We recently compiled a list of the 11 Best Undervalued Stocks to Invest in Now. In this article, we are going to take a look at where Alibaba Group Holding Limited (NYSE:BABA) stands against the other best undervalued stocks.

How Will Tariffs Affect the Market?

On March 5th, BBC reported that the US stock market had fallen after the tariffs sparked trade war fear. The recent imposition of tariffs by President Donald Trump on imports from Canada, Mexico, and China has sparked significant concerns about a potential trade war. The United States has imposed a 25% tariff on most imports from these countries, with Canadian energy products facing a 10% tariff. On the other hand, tariffs on Chinese imports have been increased from 10% to 20%. As a result, Prime Minister of Canada, Justin Trudeau announced immediate tariffs on $30 billion worth of US goods, with plans for additional tariffs on $125 billion in goods over the next three weeks. Moreover, China imposed tariffs ranging from 10% to 15% on various US agricultural imports, such as chicken, pork, and soybeans. The tariffs have raised fears of inflation and a broader trade conflict, leading to a decline in US and global stock markets. As a result, the S&P 500 experienced a significant drop, and European markets also closed lower.

Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.

While talking about how the Fed might react to the tariffs, Fisher mentioned that it is a little too early to guess. The Fed is bringing inflation down and we are getting closer to the 2% target, however, at the same time tariff increases the cost of doing business, which might slow down the economy and tickle up inflation. To conclude Fisher noted that tariffs won’t be digested quickly and will take time.

Our Methodology

For this article, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated a list of stocks trading below the forward P/E of 15 and earnings growth expectations this year. Next, we cross-checked the Forward P/E from Seeking Alpha and Earnings growth from Yahoo Finance. Lastly, after sorting our list by market capitalization, we ranked the stocks in ascending order of the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 database of hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Alibaba Group Holding Limited (NYSE:BABA)

Forward P/E Ratio: 14.8 

Earnings Growth This Year: 4.81% 

Number of Hedge Fund Holders: 107

Alibaba Group Holding Limited (NYSE:BABA) is a technology infrastructure and e-commerce giant. It runs platforms like Taobao, Tmall, and AliExpress, which allow businesses to sell products to consumers both within China and internationally. Whereas, Alibaba.com is a wholesale marketplace connecting businesses with suppliers. The company also operates Alibaba Cloud through which it provides cloud services such as computing power, storage, and analytics to businesses of all sizes.

On February 28, Arete upgraded the stock to Buy from Neutral with a $164 price target. Alibaba Group Holding Limited (NYSE:BABA) recently gained the spotlight after Apple partnered with Alibaba to launch AI features in China. By partnering with Apple, the company has gained credibility in the AI sector, positioning itself as a major player alongside other Chinese tech giants.

Moreover, Artisan Select Equity Fund in its Q4 2024 investor letter stated that the current valuation of Alibaba Group Holding Limited (NYSE:BABA) fails to reflect the company’s true potential. The fund stated that the share price initially rose due to an unexpected stimulus package announced by the Chinese government. However, once the reality of the stimulus’s limited impact became clear, the stock price adjusted downward. However, regardless the company remains a leading player in several attractive market segments, such as e-commerce and cloud computing. It has been actively restructuring by selling off non-core businesses and returning capital to shareholders through share buybacks. This strategy is seen as positive for long-term growth. Alibaba Group Holding Limited (NYSE:BABA) is one of the best undervalued stocks to invest in now.

Artisan Select Equity Fund stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q4 2024 investor letter:

“Alibaba Group Holding Limited’s (NYSE:BABA) share price decline was primarily giving back the gains from the prior quarter. Recall that all Chinese stocks surged last quarter after the Chinese government unveiled an unanticipated stimulus that temporarily captivated investors. The reality of the undersized stimulus and the challenges facing the Chinese economy eventually prevailed, leading Chinese equities—including Alibaba—to come back down to earth. Despite our concerns about China’s economic outlook, which we outlined in detail in last quarter’s letter, shares of Alibaba still represent significant value. The company is a leading player in several attractive market segments. We believe management is doing the right things, such as selling off businesses and returning capital to shareholders. It has made several changes to management and strategy that we expect will return the business to healthy growth over the coming year. In our opinion, the valuation is depressed and does not reflect a fair value for a company with these attributes.”

Overall BABA ranks 2nd on our list of the best undervalued stocks to invest in now. While we acknowledge the potential of BABA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

Disclosure: None. This article is originally published at Insider Monkey.