Magnifi Communities, Author at Magnifi Communities

Biotech Stock Heads For Major Resistance Level – Will It Reject?

While today’s potential trade my not have the option liquidity to make for a good trade, it still highlights a very important lesson for when looking for support and resistance levels. One very common scenario that takes place in trading is when a former level of support is broken and then acts as resistance. The opposite is also true.
When levels of resistance are broken, they very often will turn into support levels in the move is valid. This gives a very good jumping off point when finding our levels and brings us to today’s setup quite nicely.
As you will see in the video below, Denali Therapeutics (DNLI) established a pretty strong level of support over the past few months, failing to go much lower than this mark several times. Now, it appears set to rally back to that mark.
This scenario setups the stage for a possible reject of this $26 level. However, this is also somewhere you would like to practice your patience as the stock could very easily push past this level of resistance on strong buying volume. Focusing on price action at this level will help you get a feel for where the stock is headed.
If you are thinking reject, wait for an initial reject, followed by a retest to go higher. An additional failed attempt to push higher would add confirmation to weakness at this price overall. As always, cash is a position and there is no reason to force trades, the market will be there tomorrow… well, Monday, technically.
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Christian Tharp, CMT

Biotech Stock Heads For Major Resistance Level – Will It Reject? Read More »

Are We In A Bull Market? 1 Sector To Watch If So…

Wealthpop / By Magnifi Communities

ETF Watchlist
After hitting a bit of a turbulence brought about by the collapse of SVB and others, the market looks back on track to make a move higher. Barring any type of massive reversal in Friday’s session or next week, the S&P’s next stop should be 4200. At the time of writing, futures on SPX, /ES, sits at 4176 in pre-market.
Translation: things look pretty bullish right now. In yesterday’s edition, we were cautious of a push higher as we are currently at resistance and traveling into an old supply zone on SPY. However, the strength of yesterday’s buying, as well as the broader context of the trend over the past few months, we don’t think it is too unreasonable to assume this rally can continue.
We urged caution because hedge funds started short positions in massive amounts. But, it is unclear their plan with these ie.) expiration, risk management.
In any case, our next sector led the pack yesterday and we think this makes it worth a look today.
Communication Services Select Sector SPDR Fund (XLC)
Over the past month, the XLC has gained over 6.5%. This would have been just the kind of trade we looked for with my Smart Trades trading service. The follow through to the upside would have worked well with our slower approach to trading.
This follow through is due to stocks like Meta (META) and Google (GOOGL), which have both climbed over 7% during that time. If the rally continues to have legs, this is one sector that will remain firmly at the top of the pack.
To this point, you should also keep an eye on these individual stocks, the strength (or weakness) of this sector ETF largely depend on these two stocks that combine to be over 30% of the fund’s overall holdings.
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If you want to learn more about my strategy and how we find trades that net us over 100%, you’ll have to join my Smart Trades options trading service today! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today!
I look forward to trading with you, but until then, as always…
Good Luck With Your Trading!
Christian Tharp, CMT

Are We In A Bull Market? 1 Sector To Watch If So… Read More »

The Rush for Copper Is On

Investors Alley / By Magnifi Communities

The global transition away from fossil fuels in favor of low carbon energy sources is accelerating. In 2022, a little more than $1 trillion was invested in new technologies such as renewable energy, energy storage, carbon capture and storage, electric vehicles, and more.

Not only is this a new annual record amount, but—for the first time ever—it matches the amount invested in fossil fuels, according to Bloomberg New Energy Finance (NEF).

However, at the same time that copper demand is growing due to the energy transition, the global supply pipeline is running thin, due to shrinking exploration budgets and a dramatic slowdown in the number of new deposits discovered, as well as the quality of those deposits.

That’s why—after a long period of relatively small deals—large mining mergers and acquisitions deals focused on copper are back in a big way.

Here’s the ones to look at…

Mining M&A

The latest salvo came from mining giant Glencore PLC (GLNCY), which announced on April 4 an unsolicited $23 billion offer to buy Canada’s Teck Resources (TECK). If the offer is accepted, it would create the world’s third-largest copper miner, producing 1.4 million tons of the metal a year.

On April 11, Glencore sweetened its offer. Under the revised proposal, it has offered to pay a cash element that could amount to $8.2 billion to buy Teck shareholders out of their stake in a coal-focused spin-off, while also granting them a 24% stake in a separate industrial metals business that would be created off the back of the deal.

“Glencore acknowledges that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure,” the company said in a statement. As such, the revised offer allows investors to choose cash instead of shares or a combination of both in the coal spin-off. However, the valuation of the total offer remains the same as the original bid, at about $23 billion.

Glencore is hardly alone in its interest copper. The M&A spree extends to the $6.5 billion bid for Australia’s Oz Minerals by BHP Group Ltd (BHP), the recent takeover of Turquoise Hill by Rio Tinto PLC (RIO), and the Newmont Mining (NEM) unsolicited $17 billion offer for Australia’s Newcrest Mining (NCMGY), which was raised to $19.5 billion on April 11.

Under the terms of the revised Newmont offer, Newcrest shareholders would also get some cash. This would be a special dividend of $1.10 a share, worth almost $1 billion in total. Newcrest investors would also get a bigger share of the combined company. Newmont is offering 0.4 of its own shares for each one they hold, up from 0.38 at the previous attempt.

All these deals have something in common: copper. The world’s need for copper is driving this surge of interest from miners, all of whom anticipate a shortage later this decade, and have plenty of cash to put to work after years of high profits.

As we seek to electrify everything, from power generation to transportation to heating (heat pumps), copper is the one material that’s used everywhere in the energy transition. Copper’s essential role in electrical wiring, grid infrastructure, wind turbines, and electric vehicles makes it indispensable for the energy transition.

Demand for copper could rise to 40 million tons a year by 2030, up from 25 million tons a year in 2021, according to estimates from S&P Global. Given that it takes up to a decade to open a producing copper mine, the coming shortfall is inevitable.

However, much of the world’s most accessible, high-grade copper deposits have already been mined. The stark reality was laid out by S&P Global, which stated that most of the copper that’s being produced currently comes from assets that were discovered in the 1990s!

That leaves relatively few high-quality copper resources still available, with the easiest way to find such resources on the stock market and not through exploration. That has led to fierce competition among the major miners for these dwindling resources.

BHP Group

Among the major miners, my top choice remains BHP Billiton. The company mines copper, silver, zinc, molybdenum, uranium, gold, iron ore, as well as metallurgical and thermal coal. It also is involved in mining, smelting, and refining of nickel and potash production. Most of its revenues come from assets in the relative safe havens of Australia, North America, and Europe.

To say the least, the company—the world’s biggest mining company, as measured by market capitalization—is doing quite well.

Adjusted free cash flow in fiscal year 2022 totaled $24.3 billion (a new record year) and up from the previous record of $19.4 billion, set in the 2021 fiscal year. That has allowed BHP to pay down its debt—net debt of $333 million, as of June 30, 2022, is down from more than $20 billion in the 2016 fiscal year.

This puts BHP in a position to weather economic cycles—especially since its generally low-cost, high-quality assets mean the company is one of the few miners that can remain profitable through the commodity cycle.

Despite weak output from its flagship Escondida mine in Chile, BHP management maintained copper guidance, given the strong performance of the company’s other copper mines. BHP’s copper division accounts for about 20% of the miner’s forecast earnings.

The company is paying a fair price for Oz Minerals. And with net debt of about $7 billion—around 0.2 times its EBITDA (as of the end of December 2022), BHP can easily afford the $6.6 billion price tag for Oz Minerals.

BHP’s offer is a bet on copper as well as nickel, with continued confidence in Australia’s relatively stable geopolitics. The deal will also offer BHP a pipeline of growth opportunities.

Oz Minerals’ Prominent Hill and Carrapateena mines are both close to BHP’s Olympic Dam mine (the world’s fourth-largest copper deposit and the largest known single deposit of uranium) and Oak Dam prospect, opening up the potential for synergies with infrastructure. And Oz’s West Musgrave nickel and copper project in Western Australia is under construction. It will likely supply nickel to BHP’s Nickel West operations once fully ramped up later this decade.

BHP shares have rallied by 17% over the past six months. I expect more to come. While its dividend will not be as massive as it had been over the last year or two, BHP will still treat shareholders generously. The current dividend yield of 8.8% is nothing to sneeze at.

The stock can be bought anywhere in the low $60s per share.

The Rush for Copper Is On Read More »

2 Funds To Shield Your Portfolio From Economic Collapse

Wealthpop / By Magnifi Communities

On Wednesday, the minutes from the March FOMC meeting revealed the Fed staff is predicting the U.S. economy will slip into a recession during the second half of the year. The tone of the comments suggests the Fed is actually fine with a mild recession if that’s what it takes to finally squash inflation.

Given the old saying of “don’t fight the Fed,” it makes sense to continue to look for funds that contain stocks that tend to perform well during economic slowdown or recession.

During such times, investors often turn to defensive strategies, such as investing in more stable assets.

One of the more interesting ways to employ this kind of strategy is the Consumer Staples Select Sector SPDR Fund (XLP).

The XLP tracks the performance of the Consumer Staples Select Sector Index, which is made up of companies that produce or distribute items, such as food and beverages, tobacco, and other household products. These are products that people need regardless of the economic climate, making them less sensitive to economic cycles.

In times of recession, consumers may cut back on discretionary spending, but they still need to buy basic necessities. This makes the consumer staples sector relatively stable, and XLP can provide a defensive investment option for investors looking to protect their portfolios during economic downturns.

The fund itself has trended pretty well over the past month, rising nearly 4% during that time.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.
Consumer staple companies tend to have strong balance sheets, stable cash flows, and consistent dividends. These characteristics can be attractive to investors seeking income and stability during uncertain times. Which is why, while the overall market is rising, value stocks are rising as well as investors prepare for a possible slowdown in the economy.

Many of the companies found in XLP are well-known, multinational brands, which gives them some insulation from economic downturns.

Many of these companies’ stocks such as Coca-Cola (KO), McDonalds (MCD), and Clorox (CLX) have performed well of late as investors have sought them out as safe-havens investments.

This leads to my one concern regarding the sector is many of these stocks are now trading at historically high valuations. But the nature of fund flows suggests money managers will continue to “hide-out” in these names until there is more clarity on the route of interest rates and the possibility of a recession.

Another defensive fund is the aptly named Invesco Dynamic Food & Beverage ETF (PBJ). This ETF tracks the performance of the Dynamic Food & Beverage Intellidex, which is an index of U.S.-traded stocks of food and beverage companies. PBJ has a low expense ratio of 0.63% and has outperformed the S&P 500 Index over the past 10 years.

Over the past month, PBJ has enjoyed a nice 3% gain as the market has pushed higher.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

Another reason to consider PBJ is that while it is focused on food it is diversified in terms of market capitalization of its holding which range from large multinationals like KO and PepsiCo. (PEP) to smaller, more niche companies.

This is just one of the ways to safeguard your portfolio from the impending economic slowdown everyone is predicting. Aside from that, they are just quality stocks of companies that have been around for more than their fair share of rough economic cycles.

With Magnifi, you can even compare the individual stocks that make up these funds. For example, KO and PEP.

You could even compare the ETFs themselves to see which of them you would rather add to your Magnifi account.

These are just some of the tools Magnifi offers to set you on track to reach any of your financial goals. Goals like saving for college, retirement, or just how to save for a rainy day. Magnifi keeps you on point with it all to ensure you have a brighter financial future.

Explore more today!

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Bond Yields Are Close to Collapse. What Does That Mean?

Investors Alley / By Magnifi Communities

I put out calls to traders and managers I know on Wall Street to get their take on the recent economic data. This is data the Federal Reserve also uses to make decisions… And they told me some surprising things. One of them being that bond yields look as if they’re about to collapse. We

Bond Yields Are Close to Collapse. What Does That Mean? Read More »

What Happened To Reducing The Fed’s Balance Sheet?

INO.com / By Magnifi Communities

Over the past year the Federal Reserve has driven up interest rates by nearly 500 basis points in its quest to try to tamp down inflation.
From a range of 0.25%-0.50% back on March 17, 2022, the Fed since then has steadily raised its target for its benchmark federal funds rate to 4.75%-5.00%, with the possibility of more to come. Over that time the Fed has raised rates nine times—four times by 75 basis points, twice by 50 bps, and three times by 25 bps.
At its two most recent meetings, in February and March, the Fed raised rates by only 25 bps each, possibly because it saw fit to take a slight pause and measure the effect of all these rate increases to see if they are having the desired effect of slowing the economy in order to bring down inflation.
Of course, as we know, the rate hikes haven’t done a whole lot in reining in inflation.

Rather, they created a panic among some fairly large regional banks that has unsettled the entire banking industry, the effect of which has done more to slow the economy than raising rates has done.
Should the Fed then say that the ends justify the means, even if the means—creating the panic—were totally accidental? Should the Fed now brand its “policy normalization” program a success even if a couple of banks failed in the process? Let’s hope not.
This fiasco does call attention to the other prong of that normalization process, namely a reduction in the Fed’s massive balance sheet, which was supposed to help raise long-term interest rates gradually and lessen the Fed’s presence in the U.S. economy.
On that score, there has been negligible progress.
Back in the good old days, before the 2008 financial crisis, the Fed’s balance sheet never totaled more than $1 trillion, a figure that now looks fairly quaint, yet it was a mere 15 years ago.
Then, of course, Lehman Brothers failed, residential real estate prices crashed, millions of people lost their homes, and the Fed in just a few weeks had pumped enough money into the economy to raise its balance sheet to more than $2 trillion by the end of that year.
But that was only the beginning. Over the next several years, as the economy had trouble growing more than 1% a year, the Fed more than doubled its government and mortgage bond portfolio to more than $4 trillion. Then came the Covid-19 shutdown, and between February 2020 and the middle of last year the balance sheet had more than doubled again, to just under $9 trillion, at which time the Fed said it would start trimming it.
While the balance sheet has indeed come down, it’s certainly debatable if enough progress has been made on this score. Indeed, just as the Fed started to make some minimal progress in reducing its portfolio, it has started to increase it again.
The balance sheet hit a peak of just under $9 trillion last July, at which point it started to recede gradually, falling to $8.3 trillion early last month.
But then guess what happened? The Fed found itself blindsided by the SVB banking crisis it had largely created itself, had to pump more money into the economy to calm nervous depositors and investors, and before you knew it the balance sheet was back up to $8.7 trillion by the end of the month.
So, while the Fed has squarely focused all of its vaunted “tools” on raising short-term interest rates, it hasn’t made any commensurate progress on raising long-term rates by reducing its balance sheet.
Indeed, it appears to be artificially “propping down” long-term rates by insisting on having such a gigantic bond portfolio, which continues to distort conditions in the bond market.
If the Fed was as serious as it claims to be in “normalizing” interest rates, it could do a lot more. But then it probably would trigger another crisis and have to intervene in the markets yet again.

The Fed’s next monetary policy meeting is scheduled for May 2-3. Right now it’s difficult to bet what its next move will be.
Some expect another 25 bp hike, some believe the Fed will stand pat and make no change, while still others are hoping the Fed will “pivot” and actually lower rates if there is enough evidence that its previous rate hikes have finally put a meaningful dent in inflation.
I think that’s a little too much wishful thinking, and would not be surprised by another 25 bp hike.
However, what would be welcome would be some kind of announcement that the Fed is taking a closer look at putting a significant dent in its balance sheet.
With long-term Treasury bond yields so low, it’s doubtful that such a policy move would unsettle the markets too much. But it might have an impact on raising long-term rates, thereby reducing inflation while guiding the economy to a soft landing.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Hedge Funds Are Predicting A MASSIVE Move, Will You Be Ready?

Wealthpop / By Magnifi Communities

ETF Watchlist
If you’re sensing more weakness in the market, you’re not the only one. Yesterday’s session did not instill too much confidence that this market was poised to go higher after the sell off later in the day. However, it is hard to tell which direction the market will break as we seem to be in an area of congestion where the market is just chopping back and forth.
If the market was to pull further, we would expect the level to watch on SPX to be 4075, if this support is broken, we could make our way back to 4000 in a hurry.
Technology Select Sector SPDR ETF (XLK)
If the market was to make another leg lower, I have my sights set on the sector of the market that has been largely responsible for the recent rally. Stocks like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) led the charge with massive rallies that helped fuel this buying pressure throughout the market. However, what goes up in this market, usually comes down.
If these stocks lose steam and head in the other direction, they will almost assuredly take the rest of the market with it. Since indexes like the S&P are so heavily weighted to these stocks, if theses dominos fall, it could very well spook many investors out of the market or at least to open short positions.
The experts seem to be preparing for a pullback as well. According to Bloomberg, hedge funds have opened the largest short position in the S&P in over a decade, perhaps seeing something many of us are not. Keep an eye on the market here, congestion often leads to a big move.
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To prepare for this move and trade alongside my students and I, you’ll have to join my Smart Trades options trading service today! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today!
I look forward to trading with you, but until then, as always…
Good Luck With Your Trading!
Christian Tharp, CMT

Hedge Funds Are Predicting A MASSIVE Move, Will You Be Ready? Read More »

How To Profit Now That Gold Is Back

INO.com / By Magnifi Communities

Editor’s Note: Our experts here at INO.com cover a lot of investing topics and great stocks every week. To help you make sense of it all, every Wednesday we’re going to pick one of those stocks and use Magnifi Personal to compare it with its peers or competitors. Here we go…

Investors are betting on further increases in the price of gold after it touched a 12-month high in late March.
The reasons are twofold: first, the Federal Reserve’s cycle of interest rate rises appears to be over (despite oil rising again), and second, gold makes for a safe haven during banking sector turmoil.
Aakash Doshi, head of commodities for North America at Citigroup, told the Financial Times there had been a surge in investor activity in recent weeks. “The big catalyst has been the stress in the regional banking system in the U.S.… [and] it has been pretty much one-directional buying,” he said.
March was set to be the first month of net inflows into gold ETFs for 10 months. In addition, the volume of bullish options bets tied to gold funds has approached record levels.
Call options are a bullish bet that give investors the right to buy assets at a set price at a later date. By late March, the five-day rolling volume of call options on the SPDR Gold Trust ETF (GLD) had surged more than five-fold since the start of the month.
There was a similar increase in interest in CME’s gold futures and options tied to them, including deep “out-of-the-money” options, which would only pay out if the gold price hits new all-time highs.
And it’s not smaller investors or speculators jumping onto the gold bandwagon. Over the past few years, a key source of demand has been central bank buying. Between 2020 and 2022, central bank purchases went up 4.5 times!
Financial advisors sometimes recommend having some gold as an insurance policy against financial markets calamities.
So, let’s say you do want to add some gold to your portfolio. Then you face the choice between whether to go with a physical gold ETF or with an ETF that focuses on gold stocks.
Our colleague Serge Berger discussed this recently — is physical gold better, or gold stocks?
We thought we’d do a comparison of the two ETFs Serge talked about — the aforementioned GLD and the VanEck Gold Miners ETF (GDX). The quick and easy way to do this is to ask Magnifi Personal to run the comparison. It’s as simple as asking this investing AI to “Compare GLD to GDX.”

This is an example of a response using Magnifi Personal. This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including INO.com’s relationship with Magnifi.
As you can see, over three years GDX is (not surprisingly) more volatile, but its returns are greater than for GLD. So, it looks to be a wash. Just make sure you have some monies in gold for protection.
This is just a starting point, of course. Magnifi Personal can easily compare several stocks or ETFs on more criteria, such as dividend payments, turnover, volume, and so on. Magnifi Personal makes research like this as simple as typing in a question.
To have Magnifi Personal run similar comparisons for you, or to dive deeper into this one and compare the two Gold stocks using different criteria, click here.
This ability to have an investing AI pore over reams of data for you in seconds and spit out an easy-to-understand comparison of two or more stocks is an invaluable tool in deciding where to invest next.
We recommend you try it out. Click here to see how.
Latest from Magnifi Learn: Financial literacy is a fundamental aspect of wealth management and security. Since April is Financial Literacy Month, we’ve decided to devote today’s segment entirely to the topic!

INO.com, a division of TIFIN Group LLC, is affiliated with Magnifi via common ownership. INO.com will receive cash compensation for referrals of clients who open accounts with Magnifi.
Magnifi LLC does not charge advisory fees or transaction fees for non-managed accounts. Clients who elect to have Magnifi LLC manage all or a portion of their account will be charged an advisory fee. Magnifi LLC receives compensation from product sponsors related to recommendations. Other fees and charges may apply.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Mutual Funds and Exchange Traded Funds (ETFs) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

How To Profit Now That Gold Is Back Read More »

Crypto Continues To Surge, Here Are 2 Stocks To Watch

Wealthpop / By Magnifi Communities

With BTC breaking above that 30k mark, crypto-related stocks are are seeing a nice surge in prices. The resurgence in crypto has been largely fueled by the banking crisis that left a sour taste in many investors mouths, as well as though who have a healthy distrust for what big banks do with your money. Thus, this has led to the reminder for many as to why crypto is a viable investment and alternative to holding cash in a bank.
Given this surge in the almighty Bitcoin, crypto stocks like MARA and RIOT also seen a rise in price, taking out key levels with more room to run.
On RIOT, the level to watch is $10 after the stock broke through this resistance level and now looks to head higher. This break does not in itself signal calls, but a retest and hold of this price might constitute a higher probability trade.
Coincidentally, the same is true with MARA and with the same level of $10. A break, retest, and hold of this level should give traders a clear trade to the upside.
Remember, risk management and patience is a trader’s best friend. In any trade you make, exercise these to keep your losses smaller than your wins. These are the keys for long-term success in options trading.

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When you join The Profit Machine, you’ll learn all about my favorite stocks, setups, strategies, and plenty more. The best part, you’ll receive all my trades every step of the learning process, so not only will you get a world-class education, but you’ll also earn while you learn.

Get a jump start on your options education and put yourself in position to win in 2023. Sign up today! Until then…
Good Luck With Your Trading!
Christian Tharp, CMT

Crypto Continues To Surge, Here Are 2 Stocks To Watch Read More »

Alibaba’s Bold New Survival Strategy

Investors Alley / By Magnifi Communities

Major changes are underway at Alibaba (BABA), China’s best known e-commerce company, which was founded 24 years ago by Jack Ma.

And this time, Ma is hoping for better results. The last time Alibaba made a big move to reorganize its business, the company set in motion a chain of events that led to a proverbial train wreck—a clash with Chinese regulators, the disastrous cancellation of what would have been the world’s biggest IPO (of its fintech unit Ant Group), and a crackdown by the government on Big Tech.

This time around, Alibaba hopes to please both investors and Beijing bureaucrats with a major restructuring into six business units.

In a way, it’s reminiscent of the forced breakup of the old “Ma Bell” telecommunication system by the U.S. government (a consent decree signed on January 8, 1982) into seven regional “Baby Bells” that were ultimately formed in 1984.

Let’s take a look…

BABA’s Restructuring

It appears that Alibaba presented its restructuring plan to China’s regulators before announcing it publicly and received positive feedback from Chinese regulators that remain eager to see China’s tech giants slim down their empires.

The company portrayed the revamp, in which Alibaba itself would become a holding company, as a way to “unlock shareholder value and foster market competitiveness.”

Alibaba certainly needed to do something. Its shares had lost more than 70% of their value since Jack Ma made a 2020 speech criticizing China’s financial watchdog and banks. It was languishing near where its ADR began trading in the U.S. in 2014.

Under the proposed restructuring, Alibaba’s six new business groups will be focused on: e-commerce; cloud computing; local services (food and grocery delivery, mapping apps); logistics; digital commerce (Lazada, AliExpress, etc.); and media (Youku, Alibaba Pictures, etc.). The company’s main moneymaking units—its Taobao and Tmall e-commerce platforms—will remain wholly owned by the main company, Alibaba.

These six business units had already been operating separately for several years, so IPOs for all of them over the next several years would not be a surprise.

What’s It Worth?

Goldman Sachs analysts estimate Alibaba’s e-commerce business holds the vast majority of its value, worth about $103 a share, followed by Ali Cloud at $16 a share, and its international business at $12 a share. Goldman estimates that all the units combined are worth $137 a share.

However, I would not be surprised to see some of these “Baby Babas” actually fold, the cash generated by Alibaba’s e-commerce is spread across the other businesses. In effect, the subsidies will end with no money engine to feed the other businesses. This is a conglomerate that may be stronger as a whole rather than as individual business units.

But some of the Baby Babas will be able to stand on their own.

One of these is Alibaba’s logistics unit, Cainiao. Not only does it deliver throughout China, but it also ships packages that shoppers have bought on AliExpress, the group’s international sales platform.

In the fourth quarter of 2022, Cainiao was Alibaba’s fastest-growing business line, with sales up 27% from a year earlier, and it was operating at nearly break-even.

Alibaba’s cloud computing unit could also attract investor interest. Its business is recovering smartly after China’s zero-COVID policy lockdowns ended.

And since the Chinese government is pushing for semiconductor independence from U.S. influence, it would not be a shock to see Alibaba’s semiconductor unit, T-Head, get funding from government-related entities and possibly IPO.

However, don’t look for an IPO of Ant Group yet. It has been in limbo for more than two years and is yet to complete a government-mandated revamp. To appease regulators, Ma opted to give up control of Ant in January. That change, under Hong Kong listing rules, will delay any IPO for at least a year.

Buy BABA

BABA’s stock has rallied a good bit on the back of this restructuring announcement. It has jumped from about $86 a share to over $100 a share.

Yet, it still is very cheap, trading at just at 8 times forecast EBITDA. That is a third below the valuation of Amazon (AMZN).

I believe, thanks to the restructuring, investors will be more inclined to value Alibaba using sum-of-the-parts valuation. And I am more in the camp of Morningstar than Goldman Sachs on that valuation.

Morningstar thinks Alibaba is significantly undervalued. Under a sum-of-the-parts valuation, its analyst Chelsey Tam said “Assuming a 20% holding discount of all the five business segments, we value Alibaba at $172 per ADS…The shares are trading at just 11.6 times next-12-month P/E as per PitchBook as of March 30, which is undemanding. We think the current market capitalization ascribes zero value to all the other five businesses, its 33% stake in Ant Group, and all the strategic investments booked on the balance sheet.”

Alibaba’s internet services had annual active consumers of over 1 billion as of March 2022. And core annual active users on Alibaba’s China retail marketplaces had a retention rate of over 90% for the year ended September 2021. Those are impressive numbers.

I also think that BABA’s Ant Group stake and its ownership in China’s leading logistics company, Cainao, are being valued at near zero by investors, so around $150 a share is fair value for its stock. That’s makes its current stock price a bargain, a rarity in the current stock market.

BABA is a buy anywhere under $110 a share.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

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