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Alibaba Group Holding (BABA) Has Risen 71% in Last One Year, Outperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Horizon Kinetics top stock picks. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Alibaba Group Holding Limited (NYSE:BABA) stock. Alibaba Group Holding Limited (NYSE:BABA) is an e-commerce company.

In July 2019, Horizon Kinetics had released its Q2 2019 investor letter. Alibaba Group Holding Limited (NYSE:BABA) stock has posted a return of 71.3% in the trailing one year period, outperforming the S&P 500 Index which returned 16.0% in the same period. On a year-to-date basis, Alibaba Group Holding Limited (NYSE:BABA) stock has risen by 35.9%.

Let’s take a look at comments made by Horizon Kinetics about Alibaba Group Holding Limited (NYSE:BABA) stock in the Q2 2019 investor letter.

“Alibaba, arguably, competes with Amazon. Alibaba considers itself to be the world’s largest retailer and ecommerce firm and, in many areas, competes with Amazon on price. It has a $450 billion market value, and sales rose 50% last year. Its shareholders’ equity is about 2x larger than Amazon’s, and it has cash in excess of shareholders equity. So, it is not without considerable resources. Analysts expect Amazon to earn $27.46 per share this year, which would be an ROE of 27.9%. Alibaba is expected to earn a 19.7% ROE. In other words, as on so many occasions in history and in so many industries, we have a company, in this case Alibaba, that is competing with a very successful incumbent by being willing to earn a much lower return.

Is that not precisely how Amazon successfully competed against, even destroyed, an array of competitors in its own relatively brief history? If Amazon were to earn Alibaba’s 19.7% ROE, even trading at a P/E ratio of 40x, the result would be a $774 share price, 60% below the current level.”

Alibaba Group Holding Ltd (NYSE:BABA), Logo, big sign, People taking photos, offering, ipo, group, stock

Christopher Penler / Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Alibaba Group Holding Limited (NYSE:BABA) stock decreased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Alibaba’s growth potential. Our calculations showed that Alibaba Group Holding Limited (NYSE:BABA) is ranked #4 among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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