We recently published a list of 10 Most Promising Low-Cost Stocks According to Hedge Funds. In this article, we are going to take a look at where Alibaba Group Holding Limited (NYSE:BABA) stands against other most promising low-cost stocks.
Inflation Data Hints at a Lower Than 50 bps Cut
The September Consumer Price Index data showed that consumer prices rose way above expectations. On October 10, Omair Sharif, Inflation Insights president, appeared in an interview on Yahoo Finance to discuss his market thesis amid rising consumer prices.
Sharif highlights that while inflation data is higher than expected housing inflation has started to cool down a bit more. He also adds that food prices have come down significantly ever since the outburst after COVID-19, hinting that there are a lot of positives to extract from the current market situation.
Sharif suggests that the market is not up to a point where the Fed will be worried about the status quo, wiping out any hopes for a 50 basis point cut in November. His market thesis is that a 25 basis point cut in November will be the best course of action.
The Bull Market is Turning Two Years Old
As the Street approaches the second anniversary of the bull market, the market is set up for major changes. On October 11, Matthew Palazzolo, Bernstein Private Wealth Management’s senior investment strategist, appeared in an interview on Yahoo Finance to discuss the market outlook.
Palazzolo suggests that the Fed’s monetary policy is probably the biggest risk to the bull market at the moment. He adds that the Fed will continue to cut rates in 2025. While returns are expected to be modest the scenario is expected to be fairly conducive for equity investors.
He adds that the market is expected to broaden out from the magnificent seven and their valuations will increase relatively slowly. Palazzolo highlights that low-cost names will offer greater opportunity. He also suggests that companies beyond the big seven are more in line with their long-term average.
Our Methodology
To find the most promising low-cost stocks according to hedge funds, we used the Finviz stock screener. We set the Forward P/E under 15 to get a list of cheap stocks with a market capitalization of over $2 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024 as a primary metric and their Forward P/E as of October 13, as a secondary metric.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An e-commerce platform displaying a wide range of products to customers online.
Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Forward P/E Ratio as of October 13, 2024: 12.43
Alibaba Group Holding Limited (NYSE:BABA) ranks fifth on our list of the most promising low-cost stocks according to hedge funds. It is a technology and internet retail company that operates e-commerce sites that serve consumers and small business owners. In addition to e-commerce, Alibaba Group (NYSE:BABA) is also involved in cloud computing, logistics, digital media, and entertainment.
Its most popular business-to-consumer online retail site, AliExpress, is home to all sorts of items including appliances, office equipment, home improvement products, and sports equipment. It has over 150 million users and is present in 190 countries. Overall, Alibaba’s (NYSE:BABA) platforms are used by more than 800 million people worldwide.
During the fiscal first quarter of 2025, Alibaba Group Holding Limited (NYSE:BABA) logged $34.7 billion (RMB 243.3 billion) in revenue, up by 4% year-over-year. The company drives its revenue by offering premium customer shopping experiences at the lowest price possible.
Despite geopolitical headwinds, the company’s market share continues to grow. According to the DBS bank, Alibaba Group Holding Limited (NYSE:BABA) currently has a 40% share of the Chinese e-commerce market. The company also leverages artificial intelligence to enhance its cloud solutions and improve the buying and selling experience.
Overall, BABA ranks 5th on our list of most promising low-cost stocks according to hedge funds. While we acknowledge the potential of BABA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.