Should I Buy Alibaba Stock?

With Chinese trade war turmoil rocking Chinese stocks on American markets, many investors are wondering if they should still consider buying Alibaba Group Holding Ltd.‘s (NYSE: BABA) stock.

If Wall Street is to be believed, investors should stay far away – between January and May, Alibaba’s stock dropped 18% as the White House pushed for aggressive trade restrictions on Chinese firms.

should I buy Alibaba stock

But Wall Street is overreacting…

As the company’s recent earnings report illustrated, Alibaba’s growth potential has only gotten stronger over the last year. Earnings increased 44.4% year over year, while revenue increased 61% to $9.87 billion.

According to Money Morning Executive Editor Bill Patalon, Alibaba is “one of those rare companies that is so well-positioned, and that has such a great management team, and that has the benefit of serendipitous timing with a powerful, transformational trend” that even something as significant as a trade war can’t stop it.

Here’s why now is a great time to buy China’s best retail stock…

Alibaba Is Trade War-Proof

Alibaba’s key to success is China’s immense middle class.

According to Forbes, China has more than 500 million middle-class consumers – twice the population of the entire United States.

And analysts estimate that this number will balloon to well over 600 million by 2022.

This demographic growth has turned China’s retail industry into a $6 trillion dollar business – a 400% increase from 2010 and a 900% from 2000.

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This growth is expected to continue as China’s middle class does an increasing amount of shopping online.

In the last three months of 2017, online retail sales in China soared 35.4%. By the end of the decade, China is expected to account for 60% of all global e-commerce.

Last year, Chinese shoppers spent more than $1 trillion online for the first time ever. For context, the United States spent $455 billion – less than half of China.

Alibaba, already China’s largest digital retailor, is raking in profits from this explosion in digital commerce.

The company controls over 50% of the Chinese online retail market, and its competitors aren’t even close to matching it.

That’s why we’re not sweating the threat of a trade war or Wall Street’s overreaction.

As Bill puts it, “these issues are really just ‘speed bumps’ when viewed from the context of a stock that will create generational wealth in the decades to come.”

This company is simply too dominant in a massive, and growing, e-commerce market.

With such tremendous tailwinds behind it, Bill has an easy trade strategy for Alibaba that promises huge returns…

 Buy Alibaba While It’s Still Cheap

For years now, Alibaba has one of Bill’s favorite stocks to buy.

That’s why when Alibaba was trading for $69 shortly after going public in January 2016, Bill recommended the stock as a “strong buy.”

Even when shares soared to $180, Bill still recommended the stock as a “strong buy” despite it having already returned 162%.

Today, with trading back at $180, Bill sees Alibaba as the perfect “on sale” buy.

Bill recommends what he calls an “accumulate” strategy when it comes to Alibaba.

“Buy a stake now, and add to that stake on pullbacks – or even when you have some ‘spare change,'” he says.

In other words, because Alibaba’s growth potential is still undervalued by the market, buying shares at any near-term price decline is a steal.

Alibaba is currently trading around $183. However, Wall Street sees the stock heading to a 12-month high of $259 – a gain of 41%.

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Source: Money Morning 

Buy and Hold Forever? Nah – I’d Sell If You See These 3 Signs

Year-to-date my Hidden Yields subscribers have booked total returns (including dividends) of 155%, 30% and 27%. These profits inspired a common question:

“How’d Brett know when to sell?”

Most investors focus on buying. But selling is an ignored art. And leave it to savvy readers like you to recognize this.

I believe in letting winners run, of course, especially with respect to dividend growers. Sometimes there’s never any reason to actually sell a stock if the dividend’s sponsor is consistently growing its profits and dishing them with shareholders.

Other times, however, we’re better off booking gains and re-deploying our money to more promising pastures. Which brings us back to my readers’ prescient question – how’d I know, because they want to be able to identify sell signals, too.

Remember, there are three ways a stock can pay us:

  1. With a dividend today,
  2. By repurchasing its own shares (to make each remaining one intrinsically more valuable), and/or
  3. By boosting its payout tomorrow so that its stock price follows its dividend higher.

Our Hidden Yields formula focuses on the third – and most lucrative – strategy. It’s led us to 24.3% annualized returns to date. But it takes a few months worth of patience to achieve these gains, because we give up the most obvious strategy – dividends today – in exchange for this price upside tomorrow.

Sell Signal #1: Slowing Dividend Growth

Which means if a dividend grower isn’t growing that payout fast enough, we should move on.

Earlier this year, warehouse landlord and Hidden Yields alumni First Industrial (FR) raised it quarterly payout by 3.6%. That may be enough to excite more “basic” dividend investors, but it doesn’t cut it for us.

FR had been fine for us. In nearly two years, my readers and I saw its payout climb by 14%. We enjoyed 21% price gains too. Add up our dividends and our share appreciation, and we banked 27% total returns.

FR Gains: 21% Price + 6%+ Dividends = 27% Total Returns

“Fine” dividend growth isn’t enough for us, however. So we parted ways as friends and put FR back on our watch list.

Sell Signal #2: Low “Relative” Yield

If you want to make real money with stocks, you should always put your money with the faster dividend grower. Boeing was a great example – we added it to the Hidden Yields portfolio in December 2015. Two massive dividend raises since have sent the stock soaring to the tune of 157% total returns for us:

Boeing Soars With Its Payout

Our catalyst was the 57% cumulative “raise” from Boeing, which in turn rocketed its stock price higher. It certainly helped that we bought shares when they were a coiled spring, due to “catch up” with the firm’s ever-growing payout.

Blue Line (Price) Was Due to Catch Up – and It Did

But the curse of high prices is low yields. And Boeing’s price moonshot cratered its current yield:

The Curse of a High Price: A Low Yield

Could shares keep moving higher? Sure. But we’re not in the “buy and hope” business. We banked our 157% gains and put our cash into the next 100%+ mover.

Such as? I’ll share seven stocks with similar setups in a minute. First, let’s wrap up this lesson with our third potential warning flag.

Sell Signal #3: Business is Fine Today, But Looks Dicey Tomorrow

“First-level” dividend growth investors look in the rearview mirror, fawn over past payout increases, and declare a stock an “aristocrat” simply because its past performance is good.

Warren Buffett, the guy who made a fortune on Coca Cola (KO) and inspired countless copycats who saw their late money grind sideways, said it well:

“If past history is all there was to the game, the richest people would be librarians.”

When you and I buy next year’s payout today, we need to picture the future. Are we looking at a retail REIT that is having its rent checks intercepted by Amazon (AMZN)? Or are we looking at an Amazon-proof retailer that is actually a bargain due to overblown worries?

Let’s consider the case of Best Buy (BBY), which boldly decided to take Amazon head-on in 2012 when turnaround CEO Hubert Joly took the helm. And not only did the electronics giant live to tell about it, but it’s now leveraging Jeff Bezos’ website as a shopping channel of its own!

In recent years, Joly has been smartly “doubling down” on the quality of its retail stores (which Amazon doesn’t have). This has powered impressive free cash flow (FCF) growth, which has in turn driven serious stock returns:

Expert Service. Unbeatable Stock Price.

What else doesn’t Amazon have? A dividend, of course. Meanwhile Best Buy pays one, and its growth has been spectacular. Joly & Co. just raised their dividend by 32%. This “high velocity payout” is now up 165% in the last five years! It’s a big reason investors have enjoyed 232% returns in the face of regular Amazon fears.

We dividend hounds don’t get the benefit of hindsight. We must determine up front whether the light at the end of a tunnel represents brightening prospects – or a train rolling in to smash our firm’s entire business model.

This Friday: 7 Fast Dividend Growers with Bright Futures and 100%+ Upside

Life is too short to waste our time with middling dividends! Since share prices move higher with their payouts, there’s a simple way to maximize our stock market returns: Buy the dividends that are growing the fastest.

Don’t be fooled by modest current yields. They often don’t capture the growth potential (and it’s the dividend’s velocitythat really makes us big money – not its starting point).

How to we buy high velocity dividends, the aristocrats of tomorrow? It’s a simple three-step process:

Step 1. You invest a set amount of money into one of these “hidden yield” stocks and immediately start getting regular returns on the order of 3%, 4%, or maybe more.

That alone is better than you can get from just about any other conservative investment right now.

Step 2. Over time, your dividend payments go up so you’re eventually earning 8%, 9%, or 10% a year on your original investment.

That should not only keep pace with inflation or rising interest rates, it should stay ahead of them.

Step 3. As your income is rising, other investors are also bidding up the price of your shares to keep pace with the increasing yields.

This combination of rising dividends and capital appreciation is what gives you the potential to earn 12% or more on average with almost no effort or active investing at all.

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