If Alibaba were an American company, there would be a lot of talks about it being one of the world’s greatest stocks. Similar to how American companies have changed the way people interact, Alibaba is doing things in China and revealing global intentions, notes Barron’s. Despite this, institutional investors have kept their distance from the stock, which is up more than 60% over the past year.
Alibaba knows how to push its stock up
On Monday, Alibaba revealed plans to co-produce and finance Steven Spielberg’s films for global and Chinese audiences. The deal between the two also includes merchandising and distribution rights in China.
Alibaba has reportedly hired U.S. television producer David Hill to produce its Singles Day shopping extravaganza on Nov. 11. Hill has produced American Idol, the Super Bowl, and this year’s Oscars ceremony, notes Barron’s. Given this, it will be interesting to see what impact a great producer will have on a global online shopping event. Last year, sales from Singles Day exceeded both Cyber Monday sales and post-Thanksgiving Black Friday sales in the U.S.
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Alibaba’s team has mastered creating events and announcing deals to push the retailer’s shares up, notes Barron’s.
A trade that makes “sense”
Barron’s reiterated its recommendation to sell Alibaba’s December $125 call and buy January $110 call, considering the company is close to Singles Day and fiscal second quarter earnings. Though the recommendation was first made when the stock was at $103 (now it’s about $5 more), the trade “still makes sense” as it is still on an uptrend.
If at expiration the stock is at $125, investors will make a gain of $15, and if it fails to breach the $110 level, the trade won’t be successful. It’s a good time for such a trade, as analysts are also bullish on the Chinese firm. CLSA believes the stock is worth $135, while Deutsche Bank sees it $138.
Investors can also sell Alibaba’s November $103 put. With the stock trading around $108, the put was bid at $3.35. If at expiration the stock crosses $103, investors can keep the put premium, and if it goes below $103, investors will have to buy the stock – which is again recommended, states Barron’s.
Fund managers remains under-owned
According to Barron’s, despite the bullishness in the stock, many fund managers remain under-owned on the stock.
Recently MKM Partners analyst Rob Sanderson said, “Of the top-25 institutions involved in U.S.-based Internet megacaps, all but one is underweight Alibaba. The largest six funds are significantly underweight. To achieve equal weighting would require accumulation of about 800 million shares.”
On Monday, Alibaba shares closed up 2.27% at $108.41. Year to date, the stock is up almost 33%, while in the last six months, it is up almost 40%.