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Five Rules for Scoring Gains While Wall Street’s Stuck on Trade War News

0 | By Michael A. Robinson

There’s a memo going around Wall Street.

It says to stay away from investing in Chinese stocks during our trade battles with that nation.

It’s a good thing that someone forgot to give Daniel Zhang a copy.

Here’s the thing. While tariffs the U.S. imposed on some Chinese goods have slowed factory output over there, that has hardly filtered down to the nation’s thriving Web sector.

And that’s where Zhang is really shining right now. He’s the CEO of Internet giant Alibaba Group Holding Ltd. (BABA) and just pulled off a remarkable coup.

In the first hour of the firm’s recent Single’s Day shopping bonanza Nov. 11, it brought in $13 billion. No, that’s not a misprint. Alibaba sold more goods in 60 minutes than hundreds of U.S. firms do in a year.

By contrast, that’s roughly 80% of what Amazon.com Inc. (AMZN) pulled in last quarter.

With that in mind, today I going to reveal five reasons why this stock will continue to beat the broad U.S. market by more than 30% a year…

An Overwhelming Setup for Success

Let’s be clear. The final 24-hour figure showed the firm crushed last year’s sale. This year it brought in $38.4 billion in gross sales. We’re talking a 24.7% increase from $30.8 billion Alibaba brought in during 2018 Singles Day last year.

Ironically, China’s economy is growing at its slowest rate in more than two decades. However, analysts say some of that backlash is muted by a recent “Buy Chinese” sentiment, especially by the nation’s fast-growing middle class.

A survey last year by FT Confidential Research found that roughly 32% of 2,000 respondents said they would “definitely” stop buying U.S. goods. Another 22% said they “probably” would do so, for a combined “pro Chinese” figure of 54%.

For its part, Alibaba is one of China’s most popular firms and is nothing short of a Web juggernaut. The firm launched back in 1999, long before the Web had any real presence in China.

Today, the e-commerce giant now sells goods through its online and mobile outlets in 40 categories and operates in 190 countries. It’s remains famous for Single’s Day. And with good reason. This is the world’s largest online shopping event.

No wonder the firm has such great results. With that in mind, let’s run it through my five filters for screening tech winners. Take a look:

Tech Wealth Rule No. 1: Great companies Have Great Operations.

These are well run firms with top-notch leaders.

Jack Ma is famous among U.S. investors because he commands so much attention from the media and Wall Street. He’s even considered to be something of the “Jeff Bezos of China.”

Zhang not so much. He is far more of a quiet leader than the outspoken Ma. And yet, much of the credit for the firm’s success over the last several years stems from Zhang’s leadership.

He became CEO in September 2014 and joined the firm as the CFO back in August 2007. He has deep Web expertise and was the architect of BABA’s move into mobile and also helped launched its successful Single’s Day event.

Tech Wealth Rule No. 2: Separate the Signal from the Noise.

To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.

For the past two years, Wall Street has worried that the U.S. China trade tensions would have a huge impact on Alibaba. But, as we have seen, the company has shrugged off the slowdown in China’s GDP.

Then again, China is still growing its economy by 6% a year, well over double the rate of the U.S. Alibaba is taking advantage of the rise of that nation’s middle class, where 76% of people living urban centers will enter the middle class by 2022, compared with just 4% in 2000.

Tech Wealth Rule No. 3: Ride the Unstoppable Trends.

Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.

This firm is targeting a trend that is simply exploding. Consider that the People’s Bank of China values mobile payments there at $41.5 trillion. The bank says that in the past five years, the sector has grown by 28 fold.

Then again, some 424 commercial banks and 115 payment institutions are now connected to China’s central bank’s NetsUnion Clearing Corp. It serves as the intermediary for the clearing of nonbank online transactions.

Tech Wealth Rule No. 4: Focus on Growth.

Companies that have the strongest growth rates almost always offer the highest stock returns.

Yes, in the most recent quarter, BABA’s sales were below the three-year average. I’m not concerned because it’s only one quarter and we’re seeing the same dynamic play out across the tech landscape.

Over the past three years, BABA has grown sales an average of 53%. To be conservative, let’s assume the new growth rate is the same 35% as in its latest quarter. At that rate, sales will double in just a little over two years.

Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money

This is where we look at the firm’s earnings growth and see how long it will take the firm to double profits. By doing that, we can figure out how long on average it should take for the stock to roughly double.

I’ve gone through the firm’s financials in detail and I’m projecting earnings per share will grow by an average of 28%. That figure comes from its latest quarterly earnings and exactly matches its three-year average.

Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound growth rate of 28% into the number 72. We find that it should take just over three years for BABA to give us 100% gains.

With a $457.6 billion market cap, the stock trades at roughly $184. Since the market rebounded last Dec. 24, BABA is up 40% so far this year. That means it beat the S&P 500 by roughly 26%. Over the past five years, it’s done roughly 32% better than the broad market.

Add it all up and you can see that Alibaba is able to power through just about anything the market throws its way.

And that means we can count on BABA to give us market-beating growth for many years to come.

Cheers and good investing,

Michael A. Robinson

PS: Just a week ago, I mentioned I was working on groundbreaking research. I wanted to give you a quick update – because you need to hear this. The tiny company that could be on the receiving end of a ton of spending is developing something I’m calling Dark Burst technology. I don’t want to get too far into it – you’ll hear all about it in under two weeks – but for now, just know that I’m projecting an over 10,000% revenue surge when all is said and done. Leave a comment below if you’re following along with me!

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