Charlie Munger Bought Alibaba (BABA) Stock, Should You?

On April 12 as of 10:00 a.m. ET, Alibaba (BABA) stock was up 8 percent at $241.69. The stock was up significantly even though the company was fined $2.8 billion by Chinese regulators because of an anti-monopoly investigation. Recently, Warren Buffett's longtime partner Charlie Munger purchased a big stake in the e-commerce company.

BABA stock has fallen 4 percent YTD, but it has gained 12 percent over the last year. What’s the forecast for BABA stock in 2021? Is it a good stock to buy?

Recently, Daily Journal Chairman Charlie Munger disclosed a $37 million stake in the Chinese e-commerce giant Alibaba. As of March 31, Daily Journal owned 165,320 Alibaba ADRs. Munger prefers Alibaba stock because the returns generated on Treasury bills are significantly low. Alibaba is Daily Journal’s third-largest position behind Wells Fargo and Bank of America. Munger is also the Vice Chairman of Warren Buffett’s Berkshire Hathaway.

Alibaba was fined $2.8 billion by the Chinese government because of an anti-monopoly investigation. The fine, which amounts to 4 percent of Alibaba's domestic sales in 2019, is three times greater than the $975 million fine China imposed on U.S. chipmaker Qualcomm in 2015. Alibaba doesn’t anticipate a significant impact from changes made to its exclusivity agreement with its retailers following the imposition of the fine.

In December 2020, the Chinese antitrust regulator opened a probe into Alibaba to see whether the firm was preventing merchants from listing their products on other e-commerce platforms. The investigation revealed that the online retailer violated China’s anti-monopoly law. Also, Alibaba’s business policies harmed online retail competition and innovation. The e-commerce giant used data and algorithms to improve its market position.

According to estimates compiled by Tip Ranks, analysts' consensus target price is $317.82 for Alibaba stock, which is 42.3 percent above its current price. Among the 20 analysts tracking Alibaba, 19 recommend a buy and one recommends a hold. None of the analysts recommend a sell. The highest target price of $338 is 51 percent above the stock's current price, while the lowest target price of $285 is 28 percent above the stock's current price.

Alibaba stock is a good long-term investment. It's a blue-chip stock that still offers various growth catalysts, including cloud services and e-commerce.

Alibaba is valued at an NTM PE multiple of 20.5x, which looks attractive compared to other technology companies. Amazon and JD are trading as NTM PE multiples of 70.9x and 40.4x, respectively.

Alibaba controls nearly 60 percent of China’s e-commerce industry. As a result, the company is well-positioned to capitalize on China’s vast and rapidly growing e-commerce market.

Alibaba stock looks like a bargain opportunity if investors can handle the China risk. Right now, investors can buy BABA stock at nearly a 24 percent discount to its 52-week high. That's a better bargain than a 5 percent discount on Amazon stock.