David Tepper has never shied away from making big bets. Many of them paid off handsomely and helped make him one of the richest people on the planet. Tepper’s net worth of $20.6 billion places him 94th among Forbes” Ranking of the world’s billionaires.
The Appaloosa hedge fund The manager is not the type to rest on his laurels either. Tepper just made what is arguably a once-in-a-generation bet on a stock.
A bull in the China shop
You could say Tepper is bull in the Chinese store these days. In the first quarter of 2024, it increased Appaloosa’s stake in the Chinese online retailer Securities in PDD portfolio, which operates Pinduoduo and Temu, by almost 171%. The billionaire investor increased his hedge fund’s holdings in the Chinese search engine Baidu by 188%. He also initiated a new position in a Chinese e-commerce company JD.com.
However, it was Tepper who invested the most in another Chinese technology company, Alibaba Holding Group (NYSE:BABA). He bought an additional 6.9 million shares of Alibaba in the first quarter. This increased Appaloosa’s stake by nearly 159% to more than $814 million. Alibaba now constitutes the largest holding in the hedge fund’s investment portfolio.
Tepper first purchased shares of Alibaba in 2014, but quickly exited that position. He invested in these stocks in the third quarter of 2015, but sold all his shares again soon after. The billionaire investor repeated this trend by purchasing Alibaba, but not holding it for very long in 2017 and 2019.
Appaloosa’s current position within Alibaba lasts longer, however. The hedge fund initiated a new position in the stock in the second quarter of 2022. Since then, Tepper has repeatedly bought and sold shares of the Chinese technology company. But his recent purchase represents the largest amount he has ever invested in Alibaba in a quarter.
Why Tepper probably likes Alibaba
We can only speculate as to why Tepper loves Alibaba so much. However, I think there are three reasons that particularly stand out.
The first is valuation. Alibaba’s stock price has plunged about 75% below its peak reached in late 2020. The stock now trades at a multiple of forecast profits less than 9.5. This is almost unheard of for technology stocks.
Second, Tepper seems to expect the Chinese economy to hold up relatively well. If he didn’t, I seriously doubt he would invest so much of Appaloosa’s money in Chinese stocks.
Third, I suspect Tepper likes Alibaba’s growth prospects over the next few years as it moves into artificial intelligence (AI). Alibaba Chairman Joe Tsai and CEO Eddie Wu wrote to shareholders last month that AI is “the most powerful element that will change and accelerate the growth of our businesses.” Tsai also told the audience to JPMorgan ChaseAt the annual China Global Summit in May, “We are the only company (in China) that both runs a leading cloud business and is competitive in AI.”
Is it time to buy Alibaba stock?
With billionaire Tepper investing so heavily in Alibaba, is it time for other investors to buy the stock? Maybe, but not for everyone.
Risk-averse investors should probably avoid Alibaba for now. China’s economic problems may be worse than they appear. Economist and Nobel Prize winner Paul Krugman believes that the country’s economic model is unsustainable. President Joe Biden and presumptive Republican presidential nominee Donald Trump both favor increased tariffs on China, which could further complicate matters.
However, aggressive, long-term investors willing to accept potentially high volatility might find Alibaba attractive. The company could have good growth prospects, in particular thanks to the hosting of AI applications on its cloud platform. Tepper’s unique bet could be one that other investors might want to participate in as well.
Should you invest $1,000 in Alibaba Group right now?
Before buying Alibaba Group stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Alibaba Group was not one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $740,886!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns June 10, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Baidu, JD.com and JPMorgan Chase. The Motley Fool recommends Alibaba Group. The Mad Motley has a disclosure policy.
Billionaire David Tepper has just made a unique bet on this stock. Is it time to buy? was originally published by The Motley Fool
