By Matt McCallNov 14, 2018
What’s the biggest shopping day of the year?
If you said Black Friday, you’re right… sort of. It is in the United States anyway.
Here’s another question for you: What’s a good way to torture Matt McCall?
Answer: Taking me shopping on Black Friday.
Don’t get me wrong. I love the holidays. We had people over this past weekend and I fired up my Christmas jazz playlist. Nobody was happy about it but me. They all thought it was too early.
Still, the absolute last place I want to be on Black Friday is in a store with hundreds of other people looking for a parking space, standing in long lines to check out, and watching other shoppers fight over sale items. Nothing says happy holidays like getting in a fight over a gift.
It gets crazier every year. Black Friday is no longer a day… it’s a season that extends to Cyber Monday. That’s more my speed. I’ll take my deals in the comfort of my own home any day.
As big and as wild as Black Friday is, there is another shopping day that brings in almost four times as much money. It is the biggest shopping day of the year on the planet, and it just took place in China. A look at the numbers illustrates the huge wealth-building opportunities still available in that country.
BABA’s Big Bonanza
In 2017, Black Friday generated $7.9 billion in sales. If you go through Cyber Monday, that number jumps to about $14.5 billion.
That’s plenty impressive… until we look at Singles Day in China. Believe it or not, a single company is at the center of Singles Day – Alibaba (BABA). That would be like Amazon (AMZN) controlling Black Friday.
Singles Day takes place on 11/11. That date written out that way looks like “bare sticks,” which is how the Chinese refer to those not in a relationship. The day started out on college campuses as a celebration for singles, and in 2009 Alibaba brilliantly turned it into a day of discounts for singles to treat themselves. It has now become a 24-hour bonanza of online shopping in China.
This November 11, Alibaba clocked in sales of $30.8 billion, a sizable 27% jump over last year.
Nearly $4.7 billion of that came in the first 10 minutes!
Alibaba did 60% of all Black Friday sales in just 10 minutes.
Amazon has its own day, Prime Day, in July. It is the biggest day of the year for the company. This year, it brought in an estimated $4 billion in sales (Amazon doesn’t report exact numbers) and needed 17 countries and 36 hours to do that. Again, Alibaba did it in 10 minutes.
Amazingly, most articles I read about Singles Day have been negative. Critics say sales growth slowed versus last year or that the numbers are suspect.
It is astounding how everyone puts down what is going on in China. That won’t last. The growth is too powerful, and the right stocks will eventually push through the skepticism and rally to new highs. That equals a buying opportunity.
BABA’s Big Buying Opportunity
You can start with Alibaba, the e-commerce giant of China. If it was in the United States, it would undoubtedly be the largest company in the world.
China is already the largest e-commerce market in the world. It generated sales of $1.15 trillion in 2017, a 32% increase from the year before. In the next three years, that number could jump to $1.8 trillion, according to Forrester, as more Chinese shop online.
Alibaba is the undisputed leader, controlling 58% of the market, according to eMarketer. That makes it the Amazon of China.
Other parts of the business are also exciting, like Alibaba Cloud, China’s number-two food delivery company, and the recent announcement that Alibaba will start its own semiconductor company to produce its first artificial intelligence (AI) chip.
And yet, you can buy BABA 30% cheaper than five months ago when it traded at all-time highs.
Alibaba is a great company, but China’s stock market is the most unloved it has been in years. It is all an overreaction to trade tensions, rising interest rates in the U.S. (which could make U.S. bonds more attractive than Chinese bonds), and slowing growth.
The consensus is for average GDP growth of 6.3% in 2019 and 2020, down from around 6.7% for much of the last two years. This can be viewed in two ways. The bears look at it in a linear fashion and see declining growth. The bulls – and in this case, I would say the realists – see the world’s second-largest economy growing more than most emerging markets in the next two years.
I don’t care if growth slows all the way to 6% through 2020. It will still equate to big gains for the economy and the stock market. The low valuations we’re seeing now combined with 6%+ future growth is a recipe for profits.
Alibaba’s stock has already bounced 10% off its late October low, but you still have a great opportunity to buy one of the leading Chinese companies at a valuation that may not be seen again in a long time.
If you combine the earnings growth rate from 2018 to 2019 and the forward P/E ratio, the PEG ratio is 0.59. Anything under 1.0 is very cheap in this market. BABA is a bargain with its P/E too low for its earnings growth.
I expect this stock to possibly double in the next 12-18 months and even more over time. I see the company hitting the fabled $1 trillion market cap in the next three to five years, making it a triple from current prices.
Note: A reliable two-step formula for making 100%+ capital gains has made its way onto the global investment scene recently.
Step one: Determine which companies are dominating China’s social media, video gaming, media, and internet sectors… much in the same way America’s top tech companies dominate their markets.
Step two: Buy stock in those companies.
You can buy these stocks right now at prices we may not see again for a long time… if ever. I explain why and tell you about three other companies set to double in the next year in the current issue of Investment Opportunities.
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