Placing Alibaba (BABA) on a BUY
Today, we are putting shares of Alibaba Group Holdings (BABA) on a BUY.
China ADRs are recovering from broad selling pressures exerted across China’s equity market earlier this year. Many of them look particularly attractive and have already established early-stage turnarounds, including BABA.
Often called the “Chinese Amazon,” the company generates most of its revenue from multiple e-commerce businesses—including Taobao (one of China’s largest online shopping platforms), Tmall, AliExpress, and Kaola (a cross-border e-commerce platform), as well as from brick-and-mortar stores and a stake in Cainiao Logistics (which coordinates Alibaba’s deliveries across its e-commerce ecosystem).
Alibaba also has a booming cloud business, which saw AI-related product revenue post triple-digit growth year over year during fiscal Q1 (ended June), while continuing to increase its share of public cloud revenue. As an aside, Alibaba Cloud served as a major cloud service provider for the recent Olympic Games, providing cloud computing and AI services to Olympic broadcasting services.
All told, there are a lot of turnaround catalysts here, which I’ll cover in Friday’s weekly update. As of Wednesday, I’m placing BABA on BUY.
Moving U.S. Steel (X) to SELL on Sector Weakness
Today, we are moving shares of U.S. Steel (X) from BUY to SELL.
Comments by former President Donald Trump were followed by selling pressure in the stock earlier this week after he said he would block the Nippon Steel deal if he wins the White House in November. (Shares of U.S. Steel rose by around 10% on hopes that the Nippon deal would close this year, but the deal has been delayed by several months due to political pressures and arbitration hearings related to labor issues.)
The buy position in the company was initiated by my predecessor on expectations of a cyclical recovery, and while this is still a possibility further out, the leading U.S.-listed steel stocks are showing considerable weakness, which puts U.S. Steel—the group leader until now—in a vulnerable position. Commodity steel prices are also lagging as mills in China struggle for profitability in the face of what industry analysts are calling “sluggish” demand.
I would normally give a recently initiated stock more leeway to turn around before making the decision to cut. But given the extreme cyclicality of the steel industry, I believe discretion is paramount in this instance.
The decision to exit essentially gets us out at slightly above breakeven (or a 3% gain as of Tuesday’s closing price). SELL
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