The “BAT” stocks—Baidu (BIDU), Alibaba (BABA) and Tencent Holdings (TCEHY)—are a great Chinese story. The three companies have a combined market capitalization of over a trillion dollars and dominate their industries in China, which are online search, e-commerce and messaging, respectively. My Cabot Global Stocks Explorer subscribers grabbed great big profits in these stocks.
Today, I want to compare a couple of strong growth stocks, and comparing these three would be like comparing apples, oranges and small potatoes, since Baidu is a relative pipsqueak at just $76.4 billion in market cap.
I think a better comparison would be between Alibaba and Amazon (AMZN) because 1) they’re in the same industry, 2) they dominate their markets in that industry and 3) each one has a dynamic leader whose ambition seems to extend to other galaxies.
So, here’s a comparison of the globe’s two biggest e-commerce companies and a personal opinion about which one is a better investment right now. As usual, using Cabot’s approach to growth stocks, I’ll look at the stocks’ stories, numbers and charts.
… this stock reached $20 during the last confrontation. Not long ago, the value of this company’s products soared 618% in three weeks. Proven potential to turn $10,000 grubstake into $200,000. CEO says recent pace of orders “absolutely buoyant.”
… this stock reached $20 during the last confrontation.
Not long ago, the value of this company’s products soared 618% in three weeks.
Proven potential to turn $10,000 grubstake into $200,000.
CEO says recent pace of orders “absolutely buoyant.”Click here for more details.
BABA vs. AMZN: Stories, Numbers, Charts
But I want to start with the charts, because the comparison between the two since the start of the latest bull phase in 2016 seems remarkable to me. Here’s the chart.
From late-2015 to two months ago, the performance of these two e-commerce giants has often been so parallel that you could barely get a playing card between them. Yes, Amazon (the one in light blue) had a flat patch from April to October in 2017 and Alibaba has been hacking around since it hit a peak in January (with a steep drop-off since the beginning of June). But both stocks were up almost 200% over the period, and were in virtual lockstep from the beginning of 2016 through April 2017.
The lesson here is that the appetite of big investors for mega-cap e-commerce stocks knows no borders. Big money wants to buy big, fast-growing companies, and the distinction between developed and emerging markets is looking almost quaint.
The growth numbers for AMZN and BABA are strong. No surprise there, of course. Here’s a couple of tables summarizing revenue and earnings growth.
In value terms, AMZN trades at a P/E of 154 and BABA’s P/E is 47. Since most of the growth stock screens I’m familiar with call for growth of 20% or more, I think these companies qualify.
Both stocks are hugely liquid and have a ton of institutional sponsors, so there’s nothing there to choose.
With Jeff Bezos at the helm of Amazon and Jack Ma in charge at Alibaba, neither company lacks for ambitious, intelligent leadership. And Jeff and Jack have both been using their massive free cash flow to move into cloud services and original content production, while also acquiring (or forming joint ventures with) businesses in allied fields. Jeff bought the Washington Post newspaper and Jack has turned China’s Singles Day (November 11) into an online media event that gets as much press as Black Friday.
My decision on which stock to favor in BABA vs. AMZN comes down to this. If you can only buy one, I’d favor Alibaba, if only because China’s population is bigger (about 1.4 billion versus the U.S.’s 327 million) and China’s GDP growth rate of 6.7% is still much faster than the U.S. rate of 4.2%, though the gap is narrowing. Each of those statistics points to greater potential in Alibaba.
But it makes no sense to me to buy only one. Buying a stake in both AMZN and BABA stock gives you a little protection should either company falter. And while the old notion that emerging markets would provide a hedge if developed markets ran into an iceberg (or vice versa) has been undercut by globalization, having a blue chip and a red chip looks like a potentially useful diversification.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More
*This post has been updated from an original version.