BABA

The Puzzling Attack on Alibaba

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A large publisher ran a negative article on Alibaba (BABA) last weekend, “Alibaba: Why It Could Fall 50% Further (1)” As the article has successfully struck fear into the hearts of US investors in light of ongoing Chinese market collapse, it has also successfully hurt Alibaba’s stock. There are a few things that we think are worth emphasizing that were lacking in the piece. 1) Alibaba is significantly free cash flow positive. Unlike the many Internet sensations of the late 1990s and early 2000s that were burning through millions and millions of cash every quarter, Alibaba is significantly free cash flow positive (cash flow from operations less all capex). In the June quarter alone, assuming a USD-to-RMB exchange rate of … Read more

Yahoo! Weighing Its Options

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The IRS has thrown a monkey wrench in Yahoo!’s (YHOO) plans for a tax-free spin-off of its 384 million shares of Alibaba (BABA), worth nearly $40 billion. In late January, Yahoo! announced a plan for the spin-off of its remaining position in Alibaba into a newly-formed investment company, to be called Aabaco Holdings. Yahoo had planned for the stock of the new company to be distributed pro rata to existing Yahoo shareholders. After the completion of the proposed transaction, Aabaco Holdings would either directly or indirectly own the 384 million shares of Alibaba formerly owned by Yahoo, along with a 100% ownership interest in Aabaco Small Business, which would be a newly-formed entity that owns Yahoo Small Business. Yahoo Small … Read more

Things Are So Bad They’re Actually Good?

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Brazil’s (EWZ) economy, nearly 60% of South America’s (ILF) gross continental output, entered into technical recession following the second consecutive quarter of GDP declines, the latest reading a fall of nearly 2%. Economic data assessing the health of Brazil’s largest South American trade partner, Argentina (ARGT), remains “flawed”, according to the International Monetary Fund, which believes the country will only grow marginally in 2015 and remain stagnant in 2016. Including contributions from Venezuela, which is dealing with near-hyperinflation, the combined gross national product of the three struggling countries accounts for approximately three-fourths of South America’s entire economy. Though less than half the size of Brazil’s, Canada’s (EWC) economy has also fallen into recession during the first half of the year, … Read more

New Adds: One Name at a Deep Discount and Another Long-time Favorite

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Shown above: The carnage in the S&P 500. One of the most important measures that we strive to portray is balance. In our recent writings, we’ve demonstrated a very bearish slant on recent developments, and we still hold those views, but our actions within the newsletter portfolios are also very important in understanding how we react to such views. As we’ve outlined many a time before, global economic developments and US equity markets are not always inextricably linked, meaning that there could be times–seemingly more often than not–when the economy is heading south and equity markets hold up fairly well or even advance, and vice versa. Part of the core Valuentum process, however, centers on finding undervalued stocks and letting … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Flight to Safety

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Image Source: Pravine Chester It’s no secret that investors have been disappointed with returns across the equity market in 2015, and this week has not made the unrest any easier to deal with. Money managers across the globe will be looking at a short-term chart of the S&P 500 (SPY), observing that the broad US index has finally broken down from a critical multi-month base, and many will look to “lighten up” on some of their equity positions that they have been reluctantly “letting run” for months. It is no surprise to us why Netflix (NFLX) was one of the market’s worst performers in Thursday’s trading session. The company is trading at nearly 500 times earnings (not a typo), and the low … Read more

How Large Will Alibaba Be in 2035… That’s the Right Perspective

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We’re not happy with Alibaba’s (BABA) share price performance. It has been one of our rare losers in the Best Ideas Newsletter portfolio. Our thesis on Alibaba continues to be a long-term one, however, and unless China enters a 20-year bear market, never again reaching the heights of yesteryear, we’re not worried about it. But that said, we’re not oblivious to the near term and may lighten up on the dwindling position in hopes that a better, lower price can be established. We won’t do so without emailing an alert first, which is standard practice with newsletter constituents. We won’t harp on Alibaba’s fiscal first-quarter results, released August 12, which showed revenue advancing nearly 29% and earnings coming in a … Read more

Assessing the Fallout from the Collapse in China’s Stock Market…Thus Far

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No longer do we live in an isolated world. If you weren’t convinced of this before the Global Financial Crisis, the credit crunch of late last decade should have changed that. Just as the interconnectedness of global financial markets is undeniable, we think the significance of the health of the Chinese economy is as critically important to the trajectory of equity prices across the globe. That’s why we’re not taking the recent collapse in the Chinese stock market lightly. Here’s what we’re hearing. China’s major restaurant bellwether, Yum! Brands (YUM), owner of KFC, addressed whether a decline in the country’s equity market has impacted sales. Though the company noted that “a very small percentage of customers have been impacted,” we’re … Read more

The Chinese Market Is Rigged

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The Chinese equity markets do not reflect reality. The government has made it so. Trading on hundreds of  Chinese-listed stocks has been halted or suspended during the past few weeks, short selling (or even selling by large shareholders) has been banned, and as much as 10% of GDP has been pledged to prop up Chinese shares, and the list of government intervention goes on and on. The Chinese equity markets are “rigged,” and the government holds all the cards. Even so, share prices won’t stop falling. There may be nothing left to stop them. The writing has been on the wall for years that a bubble had been forming in China. As when everyone was on margin and “playing” the … Read more

eBay – PayPal Split

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Under previous but subsiding pressure from Carl Icahn and other shareholders, eBay (EBAY) announced last September that it would separate its payments business PayPal in July of this year. Now that July is here, we wanted to remind members of the split and explain what it means for the holdings in the Best Ideas Newsletter portfolio. On July 17, eBay shareholders will receive one share of PayPal under the ticker PYPL for each share of eBay owned. We will be launching coverage of PayPal shortly after it becomes an independent, publicly-traded company. The separation of eBay and PayPal will make eBay leaner and more efficient while greatly increasing the potential for expansion of PayPal within the booming mobile payments market. … Read more