China’s Crackdown Creates Buying Opportunity

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While it’s usually a good idea in investing not to fight a central bank, it can sometimes be a good idea to buy when a regulatory authority is stepping up its bounds. That’s especially true when targeting a company that can thrive even under a stricter regulatory regime.

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  • Chinese companies have come under fire in recent weeks, as many tech companies are looking to tighten up how their data is protected, deal with the effects of increased antitrust laws, and the like.

    The selloff has been sharp and steep enough to suggest that it’s time to look at a contrarian buy. Among China’s biggest names,
    Alibaba (BABA) looks like it fits the bill here, as it now trades at one-year lows.

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    Dubbed the Amazon of China, the company is best known as being the nation’s biggest online retailer. Shares are now down 30 percent over the past year, and the company now trades at 20 times forward earnings, a significant discount to Amazon.
    Action to take: There’s no guarantee shares won’t fall further from here. But the company is still growing, with revenues up nearly 34 percent over the past year, and the retailer has a sizeable 19 percent profit margin. Patient investors could fare well with shares here, looking past today’s regulatory fears, although shares don’t pay a dividend.

    For traders, shares are heavily oversold and due for a rebound. The January $220 calls, last going for about $4.95, could see massive gains if shares rebound from here.

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    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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