- Martin Sosnoff
Is Alibaba Only for Masochists?
If ever there was a broken crumbled growthie, Alibaba takes the cake. Once, a $300 plus, now churning in the sixties. Nobody cares.
When Jack Ma, Alibaba‘s headman, dissed his regulators for their pawn shop mentality, they cracked down, tabling all his growth initiatives. BABA then began its long descent. With no new money market funds coming worldwide, I said “sayonara” around double par. I had construed it as a $500 number in the league with BlackRock.
No sign of regulatory reprieve for BABA. If everything's on “hold”, what is the stock worth? Its metrics have gone from a pricey growthie to a property selling perhaps under 15 times present earnings power. Probably, close to 1.5 times book value. This is approximately how a manufacturer of toilet seats would be valued.
If you believe recession in China is foretold and lasting, at least BABA has $700 million in cash reserves. Far from a basket case, it could redeem itself and remain a competitive player in money management and online retailing. I’m probing the stock here. I’ve bought a ton of airline paper, Delta and United. They are more simplistic recovery specs.
I like five dollar stocks more than $300 to $500 pieces of paper because the dogs already reflect almost everything that can go wrong for a company. I refuse to get caught up in the likes of Amazon, Meta, Alphabet and Netflix. These are story stocks where nobody is able to construct an earnings model with any validity.
Out of sync paper like American Telephone and United Airlines, Freeport McMoran and even US Steel do make you more money if your entry point is timely. I’m talking 300% or more on your money. Check 5-year charts on Halliburton, Alcoa and Citigroup. Then throw in US Steel and Freeport McMoran Copper.
Currently, I’m restive. Just 35% long with 50% of assets in 2- year Treasuries where I’m losing money on paper yielding over 4%. Retreating into so-called conservative sectors like utilities, even investment grade corporate bonds, can cost you serious money. Wealthy families whose investment assets sit with wealth management operators using a 60/40 construct are underperforming benchmarks. Nobody cares when speculators get their fingers burnt, but why should family wealth get so bruised?
I am a catholic investor who’d invest in anything that breathes. Good old days, Xerox and Polaroid got my money. But, I was speculating off facts. Our office got the first Xerox 914 copier. Day’s end, I’d check its meter that recorded number of copies made. Such numbers were exponential. Xerox made me rich but I deserved it. After all, pre-914 Xerox was a specialties chemicals producer trading OTC. Nobody cared.
I bought ragamuffins too, if I could extrapolate big numbers. I’m talking about airlines with jet aircraft coming of age. Cellular technology was a giveaway because the industry consensus was share of market would peak at 15% of prospective users. Nextel spun around the clock 10 times. Later on, biotech houses first stood underrated on conservative revenue projections. I had to laugh, recently, when the governor of Florida mispronounced Gilead. He called it Gileed.
It’s one thing to jump on the right bus, but are you flexible enough to jump off? The list of broken growth stocks dates back to the sixties, namely Xerox and Polaroid, but there were hundreds of bust ups nobody saw coming. I got off the BABA bus early enough not to lose money but think of the old craze for vending machine stocks and later on cola drinks, safety razors, even Nike footwear. All overdone.
Being early is a concept I caught onto back in the fifties when New York became the art capital for the abstract expressionist movement. You could buy Jackson Pollocks and Marc Rothko canvases for a thousand bucks a piece. Later on, Basquiats sold for $2,500, now worth $100 million.
If I would’ve spent more time in the art scene than in financial markets, I’d be fabulously wealthy rather than just “comfortable”. Even so, my market plays of a thousand bucks were equivalent to venture capital rates of return. But, I never bought a canvas for investment, avoided pretty pictures and latched onto ugliness as a telling theme.
Are there lessons to be learned from BABA’s fall? Basically, stocks can and do sell anywhere. Who could have dreamt that Xerox would use up cash to buy a brokerage house or that Jack Ma would diss his regulators so gratuitously. Foreign stocks should sell at a discount to our markets. My vote is against China's autocracy of suited men who care little about minting new billionaires.
Alibaba is now a value stock that nobody’s going to put out of business. It can retain its dominant footprint in online retailing and money management. The cloud business won't ever approach the dominant position of an Amazon. Consider, the Chinese stock market can sell at a discount to our market for years to come.
I am fully aware I thought BABA was headed to $500, not low sixties. The stock seems washed out here and ready to rally. But, let’s face it, I’m a wimpy bull with burnt fingers.