We recently published a list of Jim Cramer’s latest lightning round: Top 10 stocks. With Alibaba Group Holding Ltd – ADR (NYSE:BABA) ranking third on the list, the company deserves a closer look.
Jim Cramer said on a recent CNBC show that the market has already priced in expected positive comments from Fed Chair Jerome Powell at the Jackson Hole event in Wyoming. Cramer said some bulls may be hoping for a hint of “multiple rate cuts,” but that’s “not going to happen.”
Cramer spoke about the market’s recent eight-day winning streak, which he called a “resurgence.” He said that almost “everything” was up these days. Even the companies with “poor” results were up because investors thought their situation would improve once the Fed starts cutting interest rates, Cramer said.
“But that was then, now is now. Since the winning streak ended, we have been in what I call buyer’s remorse. Stock prices had a nice run based on nothing but hope, and now they are plummeting.”
Jim Cramer also pointed out possible events in the coming months that could continue to put pressure on the markets:
“Perhaps the Fed is already too late and the economy is getting really ugly, or perhaps traders are already fearing the possibility of a Democratic victory in November, which could lead to higher corporate tax rates, which would hurt profits. And a possible witch hunt for price gouging on supermarket and drugstore shelves.”
For this article, we selected 10 stocks that Jim Cramer has talked about in his recent shows on CNBC. For each company, we mentioned the number of hedge fund investors. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
Alibaba Group Holding Ltd – ADR (NYSE:BABA)
Number of hedge fund investors: 91
Jim Cramer reiterated in a recent broadcast that Alibaba is an “incredibly cheap” stock.
Alibaba Group Holding Ltd – ADR (NYSE:BABA) recently released its quarterly results, which were mixed as revenue came in below Wall Street estimates. BofA Securities and Truist reiterated their Buy ratings on the stock following the results release. Bernstein, on the other hand, gave the stock a Market-Perform rating and raised the price target to $85 from $80. Truist also maintained its Buy rating but revised the price target down to $100 from $110, noting that Alibaba Group Holding Ltd – ADR (NYSE:BABA)’s first-quarter 2025 results showed solid operating performance despite a challenging macroeconomic environment.
UBS is bullish on Alibaba Group Holding Ltd’s (NYSE:BABA) commitment to AI as Alibaba Cloud or Alibaba Cloud makes the Chinese company a formidable player at the AI level. At the intelligence level, UBS highlighted Alibaba Group Holding Ltd’s (NYSE:BABA) large language model Qwen while the Qwen agent highlights the company’s presence at the application level.
However, uncertainties in China and the weak performance of Alibaba Group Holding Ltd (NYSE:BABA) have dampened sentiment around the stock. Although Alibaba Cloud is a significant player in the market, analysts believe that the tremendous growth and advances of Alphabet, Amazon, and Microsoft in the public cloud markets have overshadowed Alibaba Group Holding Ltd (NYSE:BABA). Wall Street analysts expect Alibaba’s earnings to grow at an average annual rate of only 1.7% over the next five years. Alibaba Group Holding Ltd (NYSE:BABA)’s PEG ratio is 3.29, which is high considering the unimpressive earnings growth expectations.
Alibaba Group Holding Ltd’s (NYSE:BABA) e-commerce business is also struggling as Chinese shoppers become more price-conscious amid a general economic slowdown. However, Alibaba Group Holding Ltd (NYSE:BABA) bulls believe the stock could recover if the situation in the country improves as the company has huge cash flow.
O’keefe Stevens Advisory issued the following comment on Alibaba Group Holding Limited (NYSE:BABA) in its Investor letter Q2 2024:
“We opened two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO), both of which have seen their shares fall over 70% from their all-time highs.
Alibaba is the largest e-commerce player in China, commanding a 40% market share in gross merchandise volume (GMV) through its Taobao and T-Mall stores. Although its cloud computing business is relatively small, its 37% market share in China makes it well positioned to capitalize on the rising demand for AI-related products. Last quarter, AI-related cloud revenues posted triple-digit year-on-year growth, and overall cloud revenue growth is expected to accelerate to double-digit growth in H2 2025.
It’s rare to find a company with dominant market share and significant tailwinds trading for ~10x adjusted EPS. After factoring in the ~$60B net cash balance, the stock trades at 6-7x, which we believe is way too cheap. We understand this company wouldn’t trade at this price if it were a U.S. company. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks: 1. China conquers Taiwan. 2. Cash can never leave mainland China (disproved). 3. Increasing competition from Pinduoduo and Shien leads to market share losses. 4. China’s geopolitical tensions are intensifying. 5. Economic slowdown as a result of the recent downturn in the real estate market. 6. VIE structure raises doubts about the company’s true ownership. All risks are justified, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. In fiscal 2024, the amount paid to shareholders was $16.5 billion, compared to $13.4 billion in fiscal 2023…” (Click here to read the full text)
Overall, Alibaba Group Holding Ltd – ADR (NYSE:BABA) ranks 3rd on Insider Monkey’s list with the title Jim Cramer’s latest lightning round: Top 10 stocks. While we recognize the potential of Alibaba Group Holding Ltd – ADR (NYSE:BABA), we believe AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than BABA but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these stocks.
Disclosure: None. This article was originally published on Insider Monkey.
