I don't know if I've gone blind. I'm hoping you can help me and
see if this is, this is real. I I'm very confused here.
I see the name Ali. Baba and I also see green on the
chart and to me this is just a bit shocking, I don't know if I
like typed in the wrong holding, is there another Ali Baba that
I'm not aware of? That's a US company.
Because so far, this companies in the green and that's not the
Ali Baba that I know if I click on the past five days, it's in
the By 19.4% this has to be some kind of some kind of joke.
Am I being you know it my under some some TV show here is
somebody hacked my internet because I'm seeing Ali Baba in
the green by 20 percent over the past five days I look at the
past month we're still in the green over a 30-day period
albeit. Not as much seven.
Point, eight four percent but this is a pretty good rally over
the past 10 days. It was up 53%.
Now, let me go ahead and zoom out.
Six months here. All right.
Now this is the Ali Baba that I remember down 21%, over the
trailing six months. All right, so I know that I'm
looking at the right company. Now, of course, we're going to
be looking at Ali Baba. We're going to be talking about
their new share buyback. Raise they raise their share
BuyBacks from 15 billion over the next two years to 25 billion
over the next two years. Now, 25 billion is a lot of
money in share. Buybacks in a two-year period
for a company with 270 billion dollar market cap.
That is a substantial amount of share BuyBacks, so we'll be
discussing that news. We're also going to be
discussing the news of the Chinese government somewhat
signaling that they're becoming a little bit more clear and
transparent with the regulations, they don't want
them to go on forever. Overall this was very bullish
news to investors so we'll be going over that as well and of
course we're going to be going over.
JP Morgan saying that Ali, Baba is quote an investable for the
next. Six or so months.
So I'll get my reaction to that news as well.
So we have a lot of news to cover today and we're also going
to be talking about my portfolio called the story fund.
This is something that I transparently track every single
week week by week so you can follow them for free.
I invested a lot of fast growing high quality companies with huge
total addressable markets that I think, will compound their
earnings, their free cash flow and their growth over a long
period of time. And I believe that these
companies have a strong potential to be able to
outperform the S&P 500, which I Every single week I do have a
significant holding in Ali, Baba, and I'm certainly in the
red on this company. So all of this is coming from
the perspective of someone that is invested in Ali, Baba and
bullish and Ali Baba. Now let's go ahead and Jump
Right In First by me saying that Ali.
Baba's a company that I've always looked at that has a
great deal of risk and that has to be something that you
consider if you're ever considering investing in a
company like this Ali, Baba has country risk, what I would
Define I am as country risk are risks specific to investing in a
specific country. I think that the US has very
little country risk. Meaning the system in the u.s.
is pretty straightforward, we allow capitalism to flourish the
government. Use usually is not an issue,
they don't usually break companies apart.
All that often, they've even let our big tech companies grow to
enormous sizes. So overall, I just view the u.s.
is having very minimal country risk.
In fact, I think it's the best country to invest in one.
Ali Baba, the company's great but it's in a country of China
and China has a lot more country risk.
They have a government that so far has been more unpredictable.
They've been more Hands-On with their Investments.
They find the companies they get seats on the boards of the
companies in the kind of oversee them and control them and it's a
country that were economic foes with.
So we are very competitive with them, from the u.s. to China.
The tensions are kind of tough between the two Countries,
there's nothing going on with Russia and Ukraine and entire
war. And China is more on the side of
Russia than the US. And so, it creates specific
country risk and I realize that investing in this company.
Now, having said that, I think it's okay to invest in companies
like Ali Baba, as long as you're aware of the risks and you
portion the size of your holding to a segment of your portfolio.
So I personally would never invest 90% of my portfolio in
Ali Baba. I think that there's too much of
a specific risk. I am fine investing. 10% of my
portfolio. That's a risk.
I'm willing to take. Now, having said that there's
been some decent developments with Ali Baba over the past few
months. We have some major news like
this news right here, the Chinese government came out and
so far. Everything up, until now has
been crackdowns finds right? Sometimes crushing businesses,
like the Chinese companies that were trying to do tutoring, the
Chinese government didn't like that.
They also put regulations on how much kids could play video games
or watch. Ouch Tick-Tock, or play
different games on tencent. Write these things that were
viewed as very bad for Chinese equities, very bad for
investors. Then there's also concerns about
the vi e structure and if they're going to honor that type
of relationship, or if they'll just scrap it, if they will
delist the equities from China in the u.s., you know, there's
all these surrounding concerns that aren't really fundamental
with Ali Baba, but they do affect the stock.
Then China came out and said this in a brief statement
carried by the state media. China's top Financial A policy
body vowed to ensure stability in the capital markets, support
overseas stock listings, resolve risks around property developers
and complete the Crackdown on big Tech quote as soon as
possible. You gank governor of the
People's Bank of China followed with a statement saying that the
central bank would help implement the policies as did
the banking Watchdog. So that statement was a huge
change in tone from the Chinese government.
One moment, they're saying, hey, we are cracking down on all
these big tech companies. Us.
The government has control. Not these guys.
We're not going to be like the US where where the big Tech
controls everything. They bribe the government.
They can kick the president off of their platform.
Right in China, the Chinese government has control, not big
tech companies, like Ali Baba, that was the tone that they were
taking and that frightened, a lot of investors.
Then they come out with this statement saying we're going to
be more supportive of these Holdings overseas.
We're going to finish this Tech. Crackdown we don't really have a
problem with these companies. We just want to regulate them,
right? It's just a change in tone.
And a lot of investors, look at what the Chinese government is
signaling and they gauge that on whether or not it's risky to
invest. After they released a statement,
the stock price went up like 17%.
So obviously had a pretty big impact now whether or not you
really trust or don't trust the Chinese government, I don't
think as the big question here, I think the big question is,
what is their incentive? So when I look at the Chinese
government, I don't trust him at all.
It is a, you know, a government not like the u.s. they can
really do whatever they want. They have no.
Leti so I don't trust the Chinese government but what I do
trust is basic incentive. I don't think the Chinese
government has a strong incentive to crush their biggest
companies to make them not profitable.
I don't think they have much incentive to not do any business
with the US. I think they're strong incentive
to the opposite of that. I think they need their
companies to do. Well, they need them to be
competitive but they still want to regulate them during that
process. So to me, this isn't an issue of
trust, it's an issue of incentive.
The next news that we have, is that Ali Baba is upping their
share BuyBacks to 25 billion. This is from The Wall Street
Journal here. They say that Ali Baba boosted
its share buyback program to 25 billion from 15 billion in a bid
to reassure investors about the company's prospects.
After your much, the stock has fallen.
The potential BuyBacks are substantial compared with the
Chinese e-commerce giant market value.
So 25 billion dollars of BuyBacks.
For a company, the size of apple or Microsoft is like it's like,
Nothing like a little drop on the pond.
But when you're doing 25 billion of share Buybacks in a two year,
period, the size of Ali, Baba, that is a substantial by back to
put this in perspective, if we look at what they're actually
doing with their finances. Here Ali, Baba, generates a
significant amount of free cash flow.
They are a profitable company and they're taking a lot of
those profits to limit their amount of shares.
They're buying back their shares.
And if they buy back, 25 billion of 270 over the Of a two-year
period. That means that they're buying
back roughly speaking. A little over nine percent of
their market cap over a two-year period 9% of their market cap
bought and purchased just by the company in the next two years.
So, another way to view this is Ali Baba.
Could with this money announced that they're paying a four and a
half percent dividend yield over.
The next two years, you just get a four and a half percent yield.
That would be roughly. The same thing.
Of course, they're not doing that they're doing share.
X. And the reason why they're doing
this share buyback is probably because they consider the stock
to be relatively cheap by every metric.
It seems to be cheap. They said, the 67 percent
increase in Firepower, allocated for BuyBacks was quote, a sign
of confidence about the company's continued growth in
the future and we have Citigroup are seeing the analysts said the
enlarged buyback plan was quote likely, the largest share
repurchase program ever. In China's internet sector and
suggested Ali. Baba's management viewed at
stock is undervalued and Attractive.
So citigroup's guess here is that Ali.
Baba's, doing these share BuyBacks to probably promote
confidence in the stock, which I think it does.
Plus they view the stock is undervalued.
So they're buying back undervalued shares.
Now, I think the reason that companies like this typically do
share BuyBacks, and so many companies do them is quite
obvious. If you look at the way that EPS
is calculated, the earnings per share of the company.
The main thing that drives valuation of these companies is
the earnings per share because a PE ratio is the price compared
to the earnings per share. If you look at the EPS
calculation, like we've seen its the net income, over the
earnings per share. When a company does share
BuyBacks, they reduce the amount of shares outstanding.
So, the net income is / less shares outstanding, which makes
the earnings per share greater and we can see this happen over
and over again and US firms. It is a very common practice
with companies that generate extra Capital.
We have Google as an example, look at Google's shares
outstanding over time, Back in 2018, they had 695 million
shares outstanding and every single quarter since then,
they've aggressively bought back more and more shares doing share
repurchases. Now, they have 662 million
shares outstanding. Well, that means that they're
doing share BuyBacks. They're lowering their share
count, which has the effect of increasing their earnings per
share. And you can see Google's
earnings per share, go up dramatically over the past two
years. Now, it needs to be said that,
of course BuyBacks are not the only reason companies grow.
Their earnings per share just one effect.
They also grow at just by growing their net income, so the
company becomes more profitable, the earnings per share will grow
as well. But the buyback is oftentimes, a
key ingredient in growing the earnings per share.
We could also look at the example of dominoes here,
dominoes is another company that both grows its net income.
This is the net income growth over the quarters, right
quarter-over-quarter. They're growing at over time,
but they not only become more profitable and grow their net
income. They're also using their free
cash flow to buy back shares and you See the share count
declining over time and both of these that increase net income
and the declining shares outstanding, of course, grow
their earnings per share, and Domino's has been extremely
effective at growing, their earnings per share.
So I view, this is a very common practice amongst us companies.
And I think that in the situation of Ali, Baba, it's
probably positive news because if you think, the stock is
heavily undervalued right now, which it is based on every
fundamental level. The only real risk is Is country
risk with China, but if the stock is heavily undervalued,
you want the company to be buying back, the shares at
undervalued prices. Now, we wouldn't want Ali Baba
to be buying back their shares. If the stock price was heavily
overvalued the company had a two trillion dollar market cap in
the price was just through the roof because in that case, it
would probably be a waste of money. 25 billion dollars,
doesn't go a long ways when you're buying a two trillion
dollar company, but in the scenario that Ali Baba's in
right now with their stock price heavily, Because of all the
surrounding news, I think that this is a great time to be doing
share, BuyBacks there, ever going to be doing share,
BuyBacks aggressively right now is probably a good time for it.
So I am very bullish on this news.
I think it's good for investors, good for shareholders.
I think that it's probably the best thing to Ali Baba could be
doing. Now, the other news that I
wanted to respond to, was this big news right here from
JPMorgan analysts they say that after this big sell-off Ali,
Baba is now an investable. That's what they say for the
next 6 to 12 Twelve months. In fact, if we read from the
actual report JPMorgan analyst, Alex?
Yeah, says they doubled downgraded Alibaba.
Group Holdings to underweight from overweight with the price
target of 65 down from their previous price target of 180.
So, just to get this straight Ali, Baba to them was a by, for
the past six months, they said buy this stock, buy this stock,
but then the stock price fell 55 percent over the past six
months, all the while JP Morgan was saying this companies.
I then when it hits complete Rock Bottom in the past month,
on the 15th, they come out with new saying that Ali, Baba is
uninvested oil their words, and then the stock goes through, one
of the biggest rallies of all time.
It's up 54% in 10 days. This is the problem, with
listening to analysts, they always follow the stock price.
If the stock goes down, they will move there by rating to a
celebrating, they'll say, get out of the stock 4, stock surges
and priced, and it's going to the Moon, they'll say, Now's the
Time to jump in after a massive price surge in reality.
You should be doing the exact opposite when stocks come down
in price and they're still fundamentally sound companies
that makes the valuation more attractive and it makes your
future expected returns higher and likewise, when the company
goes up in price and they surged up, that's when you should be
more skeptical and cautious about valuation risk.
So what these analysts do in my opinion is in many cases, the
exact opposite of what investors should be doing.
They follow the stock price, they Heavily after companies had
a big run up and they tell you to sell after companies have had
a big sell-off. So that's my thoughts.
So far on Ali Baba. Now moving on, I do have to give
a quick portfolio update with my portfolio.
The story fund. This is a aggressive growth
Centre portfolio where I invest in what I consider to be a lot
of high-quality fast-growing companies with huge total
addressable markets that I think will generate a significant
amount of free cash flow in the future.
Now, so far this portfolio has struggled, it's in fact, trailed
the S&P E500, I benched Market against the S&P 500.
The story fund. My portfolio is the Blue Line.
The S&P 500 is the red line. So, right now we're trailing the
S&P 500 by around 12%, and I know that doesn't look good.
I could try to hide this and, you know, try to make excuses or
whatever. But I'm going to show the
outcome either way. Even if I end up losing against
the S&P 500, my goal is to outperform spy by the end of
2025. So we're still in the early
endings. In my opinion, we have Long ways
to go. I still think I have a very good
chance of outperforming, the S&P 500.
We've already had some huge sell-off seen these.
Companies multiples have already come way down and now they're
actually starting to grow. And I think this story will
change a little bit with these companies.
I have big bets and Netflix and Google and Microsoft, and Ali.
Baba, I still am bullish on Spotify.
I still have a lot of apple. And my biggest BET right now is
Amazon have around 30 percent of my portfolio in Amazon, Because
I just see enormous amount of upside to this company and I
think it will generate a significant amount of free cash
flow. So I still remain bullish.
Even though right now things look ugly but just a month ago.
They looked a lot uglier at twenty thousand dollars in Red.
So things can change quickly. So that's my portfolio so far.
And again I'm going to be tracking the performance every
single week so you can follow along with it for free by just
subscribing to the channel. If you want extra content,
exclusive videos a patreon community as well as investment
software. You can check out the Run.
There's a link in the description.
Other than that. I'll see you in the next one.