Chinese stocks have lost favor with U.S. investors over the summer months, and for good reason, cautions Steve Mauzy, growth stock specialist and editor of Personal Wealth Advisor.
The Beijing bureaucrats, which for years have approached regulation with the resolve of a bored teenager, have embraced the cause of consumer rights, market abuse, and the misuse of consumer data with the zeal of a religious convert.
China recently shocked investors by taking the Draconian action of halting for-profit education, thus decimating for-profit education stocks.
The government has taken regulatory action against gaming, e-commerce, and streaming media companies. Regulators have halted numerous Chinese public companies from accepting new users.
I see the Chinese regulators’ actions as a simple show of muscle flexing. Once China’s companies toe the line the regulators want toed, the flexing will relax, and so will the regulatory overreach.
I mentioned a couple of weeks ago that Alibaba Group Holdings (BABA) shares appear valued priced. The e-commerce and Internet giant appears even more value priced today, thanks to all the regulatory-motivated selling.
To say Alibaba’s business remains robust is to say the obvious. Revenue is still expected to grow at least 20% over the next year. Earning are still expected to grow 16%. Because of the year-long sell-off, Alibaba shares are priced today at only 16 times forward EPS estimates.
I perceive a value proposition, and so does Alibaba management. The company has bought 18.1 million of its American depositary receipts (ADRs), the equivalent of ordinary 144.5 million Chinese shares, for $3.7 billion.
Management has raised its buyback authorization from $15 billion from $10 billion through 2022. I think it’s an intelligent allocation of company capital.
To be sure, the political risk inherent in Alibaba is disconcerting. If you have a low risk tolerance, you might pass. If you have a high tolerance for risk, though, I think the potential reward Alibaba offers justifies accepting the higher risk.