Trading Vipshop and Alibaba (11/14)

Earlier this year, we began recommending Vipshop (VIPS) and Alibaba (BABA). Note Vipshop’s recent 10-1 stock split and the article below.

Over the next three years, we expect both of these stocks to significantly outperform the S&P 500 and the Investable Benchmarks.

ETF PM has long positions in Vipshop (VIPS) and Alibaba (BABA).

Easing Alibaba Concern Helps Vipshop Surge to Record

Jackie Klauberg, 11/02/14

Chinese online fashion retailer Vipshop Holdings Ltd. (VIPS) rose to a record in New York as concern waned that Alibaba Group Holding Ltd. (BABA) will lure investors away from smaller rivals.

Vipshop surged 4.3 percent to $229.29 on Oct. 31, capping an 11-week stretch that saw the company’s American depositary receipts lose 26 percent of their value leading up to and immediately after Alibaba’s $25 billion initial public offering, before rallying 34 percent to an all-time high. The Bloomberg index of the most-traded Chinese stocks in the U.S. rose 1.4 percent for a 3.3 percent advance in October.

Vipshop, China’s largest online apparel discounter, will continue gaining market share among the country’s 632 million Internet users as it benefits from supply chain improvements and investments in mobile technology, according to Morgan Stanley and Solaris Asset Management LLC. Authorities in China, which is headed for the slowest full-year growth since 1990, said last week they will support consumption in six industries including e-commerce.

“The Chinese government wants to encourage this transition to a consumer-led society,” Timothy Ghriskey, senior investment officer at Solaris in Bedford Hills, New York, said by phone Oct. 31. “Vipshop is a company that really provides fulfillment to sellers; Alibaba is only a market list, so you open a store online and that’s it. Investors have high confidence in Vipshop in terms of growth potential.”

Consumption is an important engine of economic growth, China’s Cabinet said Oct. 29. Authorities are trying to avoid a deeper slowdown after gross domestic product expanded 7.3 percent in the third quarter, the slowest pace since 2009.

‘Strong Momentum’

Vipshop, which has seen “strong momentum” in its mobile business, will continue to grow as it invests more in mobile traffic, analysts at Morgan Stanley led by Robert Lin wrote in a report dated Oct. 29. The bank started coverage of Vipshop with a rating equivalent to buy.

Hangzhou-based Alibaba, the world’s biggest e-commerce platform, has gained 45 percent since its record $25 billion IPO in September that valued it at $243 billion. Vipshop, with a market value of $13 billion, trades at 51 times 12-month estimated earnings, compared with Alibaba’s multiple of 37 and an average of 16 for members of the Bloomberg China-US Equity Index.

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