Is Alibaba (BABA) Stock Undervalued Right Now?

Chinese markets nosedived on Tuesday as news surfaced that President-elect Donald Trump is eyeing two China hawks, Sen. Marco Rubio (R-FL) and U.S. Rep. Mike Waltz (R-FL), for top roles in his administration.

The potential appointments sparked fears of a tougher U.S. stance on China, sending the Chinese yuan tumbling and stock markets sharply lower in Shanghai and Hong Kong.

Yuan, Chinese Stocks Take a Beating

In currency markets, the yuan slid past 7.4250 against the U.S. dollar, a level not seen since early August. The Shanghai Composite dropped 1.39% to close at 3,422, while the Shenzhen Component fell 0.65% to 11,314.

The Hong Kong Hang Seng Index had an even rougher day, plunging 580 points, or 2.8%, to finish at 19,847—its lowest close in six weeks.

This selloff comes amid growing concerns over a hardline shift in U.S.-China relations. Trump's rumored choice of Rubio, an outspoken critic of China, for Secretary of State, and Waltz, a NATO skeptic and China opponent, as national security adviser, suggests a more aggressive U.S. foreign policy toward Beijing.

If confirmed by the Senate, Rubio, who serves on the Senate Foreign Relations Committee, would be the first Latino to hold the position. Known for his hardline stance on China, Rubio has previously advocated for more stringent measures against Beijing on everything from trade to human rights issues.

Tech and insurance stocks bore the brunt of Tuesday's market rout in Hong Kong. Major Chinese firms saw their share prices sink, with Meituan, Lenovo, China Life Insurance and Semiconductor Manufacturing International recording daily losses between 5% and 8%.

U.S.-listed Chinese companies also experienced sharp premarket declines in New York. At 8 a.m. ET, Alibaba Group Holdings Ltd. was down 3.1%, PDD Holdings Inc. dropped 2.8%, Baidu Inc. fell 2.9%, and electric vehicle makers NIO Inc. and XPeng Inc. tumbled 4% and 6%, respectively.

Weak Credit Data Adds to Market Woes

The political tension came on the heels of lackluster credit data in China, adding to investors’ anxiety. October's new loans from Chinese banks totaled just 500 billion yuan—well below the forecast of 700 billion yuan and a sharp drop from September's figures. The disappointing credit numbers, coupled with the lowest monthly credit growth in 15 years, indicate that China's domestic demand remains fragile.

"China’s economy remains weak. The government seems to lack the will, or the way, to stimulate consumer demand," said veteran Wall Street strategist Ed Yardeni, president of Yardeni Research.

"China announced a $1.4 trillion financing package on Friday. That’s a big number, but it will mostly go to cleaning up and refinancing local government debt," Yardeni added, underscoring skepticism about Beijing's ability to spur economic growth.

David Morrison, senior market analyst at Trade Nation, attributed the market reaction to a "disappointing" fiscal stimulus package announced last week by the National People's Congress (NPC). "Investors continue to respond to the underwhelming fiscal stimulus... There's now the prospect of a huge rise in tariffs, both in size and scope, on exports to the U.S. as threatened by President-elect Donald Trump," Morrison said.

Bank of America analyst Anna Zhou echoed concerns about the limited impact of recent policy measures but sounded slightly more optimistic about the future.

"Weak loan growth for both households and corporates continues to underscore fragile domestic demand," Zhou said.

"To turn credit demand around, more policy support is warranted. The recent pivot in policy stance has been a welcoming sign... we expect more measures to be rolled out in 2025 on both monetary and fiscal fronts, which could help stabilize demand and translate into better credit growth."

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Shares of U.S.-listed, China-based stocks ended the session mixed on Monday during more Chinese stimulus measures and uncertainty surrounding potentially higher tariffs from the incoming Trump administration. Here's a look at what's going on.

What To Know: The Chinese government announced another stimulus package last Friday to include six trillion yuan ($840 billion) to ease local governments' hidden debt burdens. China-based stocks ended lower Friday after the new stimulus package failed to impress investors who expected over 10 trillion yuan ($1.39 billion) in financial support.

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Additionally, President-elect Donald Trump pledged to raise tariffs on foreign goods, including import fees of up to 60% on Chinese-made goods entering the U.S. adding to the turmoil in the sector. China's economy is heavily dependent on manufacturing and exports which could decline under the proposed tariff hikes.

Elizabeth Economy, a senior fellow at the Hoover Institution, told Bloomberg TV that while Trump's proposed 60% tariffs would significantly impact China's economy, the challenge could favor China's growth in the long term.

"China is probably looking at the return of Donald Trump as short-term pain, but potentially long-term strategic gain," Economy said.

China is reportedly considering implementing a "unilateral opening" strategy to counter the tariffs by offering tariff cuts, visa exemptions and other incentives to U.S. allies in Europe and Asia.

Price Action: Alibaba Group Holding and JD.com, Inc. rose Monday after the companies reported "robust growth" resulting from their Singles' Day sales promotions. However, Baidu, Inc. , NIO Inc. and PDD Holdings, Inc. ended the session lower amid the ongoing uncertainty.

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• Trump’s Potential ‘Health Czar’ Robert F. Kennedy Jr. Rattles Vaccine Stocks: ‘Shoot First Reaction’

Photo: Shutterstock

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Investors looking for stocks in the Internet - Commerce sector might want to consider either TripAdvisor (TRIP) or Coupang, Inc. (CPNG). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

TripAdvisor has a Zacks Rank of #2 (Buy), while Coupang, Inc. has a Zacks Rank of #4 (Sell) right now. This means that TRIP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

TRIP currently has a forward P/E ratio of 12.51, while CPNG has a forward P/E of 219.73. We also note that TRIP has a PEG ratio of 3.13. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. CPNG currently has a PEG ratio of 217.55.

Another notable valuation metric for TRIP is its P/B ratio of 2.27. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, CPNG has a P/B of 10.34.

These metrics, and several others, help TRIP earn a Value grade of B, while CPNG has been given a Value grade of D.

TRIP is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TRIP is likely the superior value option right now.

Zacks Investment Research

There were some impressive earnings movers last week lead by Applovin’s 46% rally. CVS Corp , Palantir and Gilead Sciences also had big rallies, while Super Micro Computer’s woes continued with an 18% slide.

This week, we have Home Depot , Alibaba , Disney , Shopify and Spotify all set to report among some other important names.

Before a company reports earnings, implied volatility is usually high because the market is unsure about the outcome of the report. Speculators and hedgers create huge demand for the company’s options which increases the implied volatility, and therefore, the price of options.

After the earnings announcement, implied volatility usually drops back down to normal levels.

Let’s take a look at the expected range for these stocks. To calculate the expected range, look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. Use the first expiry date after the earnings date. While this approach is not as accurate as a detailed calculation, it does serve as a reasonably accurate estimate.

Monday

MNDY – 13.3%

Tuesday

SHOP – 13.2%

OXY – 4.3%

HD – 4.1%

CAVA – 12.1%

ONON – 10.9%

SPOT – 9.7%

SE – 11.9%

SU – 3.9%

Wednesday

CSCO – 5.3%

Thursday

DIS – 6.9%

JD – 8.9%

Friday

BABA – 6.3%

Option traders can use these expected moves to structure trades. Bearish traders can look at selling bear call spreads outside the expected range.

Bullish traders can sell bull put spreads outside the expected range, or look at naked puts for those with a higher risk tolerance.

Neutral traders can look at iron condors. When trading iron condors over earnings, it is best to keep the short strikes outside the expected range.

When trading options over earnings, it is best to stick to risk defined strategies and keep position size small. If the stock makes a larger than expected move and the trade suffers a full loss, it should not have more than a 1-3% effect on your portfolio.

Stocks With High Implied Volatility

We can use Barchart’s Stock Screener to find other stocks with high implied volatility.

Let’s run the stock screener with the following filters:

• Total call volume: Greater than 2,000
• Market Cap: Greater than 40 billion
• IV Percentile: Greater than 80%

This screener produces the following results sorted by IV Percentile.

With the US election concluded, the market shot up into the weekend with the S&P 500 closing the week up almost 5%. In addition, some of the big names like Tesla also finished the week very strong closing the week up a whopping 29%.

Powell also came through with another rate cut bringing the Fed Funds rate down another 25 basis points, whether this will start to spark inflation back up remains to be seen, but the market clearly loves it.

This week there is a Bank holiday on Monday, several news announcements throughout the week, and Powell speaking again at a conference on Thursday.

Here are 5 things to watch this week in the Market.

Bank Holiday

On Monday the US celebrates Veterans Day, which is a bank holiday where banks and the Bond markets are closed. Futures and the Stock market will remain open, but odds favor lower volume as trade desks are closed. This could create an environment for extra volatility.

Earnings

Earnings have really died out in recent weeks, and as we said last week Nvidia is the next really large release and that is out in a few weeks.

There are still a few releases to watch though, first up is Home Depot on Tuesday. This is important to watch for a few reasons, first is how the stock actually reacts to the earnings and guidance. Second is how they see the coming quarters in terms of profitability and store traffic. Any appreciable decrease expected here could be seen as them prepping for an economic downturn. Disney , and Alibaba are also expected to report this week and both have heavy ties to the consumer so any miss here could show the consumer is tightening their purse strings on discretionary spending.

CPI

Wednesday is the first real news release of the week with CPI coming out before the market opens. These are core measures of inflation in the prices paid by consumers, and as this is the first release since the Fed started easing it could produce some volatility.

If prices immediately edge back up it could show that inflation has not been beaten and the Fed started this too early. This could be seen as a negative in the market and could spark some selling. If they come in at or below expectations it could help to continue the rally from this week.

PPI

PPI is out on Thursday and this is the change in prices for finished goods sold by producers to either the end-user or an intermediary. Similar to CPI, any unexpected increases could cause some worry to enter the market the inflation is back or heating back up. If it's at or below expectation then the market could see this as a positive. The next impact of this could also depend on how CPI comes out the day before.

Retail Sales

To close the week out on the news front, Retail Sales are due out Friday morning. These reports are heavily influenced by CPI and PPI as they are the total value of goods and services sold. One thing to watch here is and divergence between the regular and Core releases as the only difference is the inclusion of Auto sales. If there is a large gap between them, it could be inferred that rates are still having a negative impact on the auto market.

Best of luck this week and don’t forget to check out my daily options article.

On the date of publication, Gavin McMaster had a position in: BABA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.