Alibaba A 'Top Pick' Despite Uncertainties

Alibaba Group Holding Ltd BABA saw a pullback in the weeks leading up to the U.S. presidential election. However, the selloff coincided with the devaluation of the yuan against a strengthening U.S. dollar.

MKM Partners’ Rob Sanderson reiterated a Buy rating on the company, with a price target of $130.

Higher Valuation Justified

Sanderson mentioned that the pullback in the stock was also due to some investors being disappointed, since they expected Alibaba to raise its guidance, following the robust Single’s Day event.

However, the analyst believes “the core commerce business alone justifies a higher stock price and there is significant value in other assets.”

Low Currency Exposure

In addition, Alibaba has very low exposure to currency fluctuations, given that less than 1 percent of its revenue comes from Chinese merchants selling to customers in the United States, while only a small part of Tmall GMV comes from U.S. merchants selling to Chinese customers.

“Since the IPO, there have been five notable episodes of RMB devaluation vs. USD, four of which are coincident with a significant sell-off in the stock price. In each case, the stock has rebounded meaningfully in the following 2–3 months as exchange rates stabilize,” Sanderson explained.