Another year is coming to an end now.
It is unsure yet if 2018 will be a better year in terms of the financial markets but life sure is better this year working for a better company compared to 2017. Work life balance sure makes a big difference. Hope it was a better year for many of you too.
To find out if 2018 was a better year to my money, I shall follow up with a final post to summarize my performance and the good lessons learnt.
Associated British Foods was removed from my portfolio recently as the risks in pounds (GBP) became seemingly high due to Brexit uncertainties. I am lucky to get out early at GBP 24.40 at a profit. It is estimated that the pound can drop by 10-25% to the Dollar if agreements fall out (which it most likely will). Thus, I prefer to have my cash back in SGD.
In contradiction to my last post, I have taken back my words and added Alibaba back for the very long-term growth.
The reason of buying back was due to simple reasoning (yet complicated since I did sold all my shares back in October’18).
USA stocks are mostly expensive, which explains why I am turning back to $BABA for growth. Baidu looks good too. (Some popular US stocks discussed in Stocktwits forum are: Amazon, Apple, Nvidia, Facebook , Alphabet, Microsoft and Netflix)
My prior research was probably insufficient to keep me confident in holding on to BABA earlier.
With further digging, I now have more reasons to back me up now on some past concerns:
Accounting practices
Alibaba shares are held by major and reputable institutions such as BlackRock, T.Rowe Price, Vanguard and State Street. Moreover, the SEC are closely watching Alibaba on its reporting figures. Frauds may exist in NYSE but it is at its minimal. Non-GAAP figures may have been used and it can be argued that they are able to reflect more accurately on the operations of a business than standard GAAP.
The reason of having its shares held in Cayman Islands also became more apparent now. As opposed to allegations made, the main reason of doing so was to avoid the PRC regulations that restricts foreigners investing in China companies. Without knowing this, such arrangements once appeared to me as shady.
Of course, risks are still present to foreign investors here.
Valuation
Investments like Baba should not be for the short term. It may take 2-10 years for share prices to reflect the growth coming ahead.
Alibaba has an attractive PEG ratio of around 1.0. Due to expected growth of around 27% in the next 5 years, it helps explain the current share valuations and high P/E.
Forecasted GBP growth in China is still strong while Baba has many untapped market share to penetrate in China, Taiwan and Asia.
It is obvious Alipay is almost everywhere in Chinese retail as it became a trustworthy brand for vendors and consumers alike. Core e-commerce will also continue to feed into revenues while Alibaba “passively” earns from commissions from each transaction made.
Looming Key risks
Examples are RMB devaluation, trade wars affecting China revenues/investors’ perceptions, China country debts, poor investments made in Media industry.
We know Alibaba is not directly affected by US tariffs (due to revenue largely coming from China) but investors are fearful of how China will be affected as a whole.
Cloud computing is still at a net loss despite its exponential growth.
I was lucky enough to be presented with share prices below the one I have sold previously. (so it is similar to not having sold my initial stakes. Such chances do not always appear).
Anyway, my current exposure is not huge to boost about. Time will tell if the small risk is worth it.
For latest Baba news, please do check out https://www.alizila.com
I am looking forward to check out the portfolio performance of others as well as my own in the coming days ahead.
Happy holidays to all.
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