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Mutual Funds Ought To Own More Alibaba

SFTBF, META, BABA | September 26, 2016

Rob Sanderson of MKM Partners remains bullish on Alibaba Group Holding Ltd (NYSE: BABA) as he believes the shares are significantly underweight versus peers (based on June 30 filings), despite its strong recent performance.

"We think BABA should be and will become a core holding for large cap growth managers and anticipate a lengthy cycle of re-rating ahead for the stock," Sanderson wrote in a note.

The analyst noted that the largest six funds are significantly underweight and it would need accumulation of 800 million shares to achieve equal weighting.

Meanwhile, Alibaba is a closely held stock for a mega-cap, with Softbank Group Corp (OTC: SFTBF), Yahoo! Inc. (NASDAQ: YHOO), management and employees owning about 60 percent of total shares. In addition, another 10 percent is owned by sovereign wealth funds and six funds with low turnover/long-term investment horizons.

Many investors are comparing Alibaba to the early days of Facebook Inc (NASDAQ: FB) as a public company. Like Facebook, shares of Alibaba also saw a post-IPO dip on concerns over mobile monetization. But, similar to Facebook, Alibaba also consistently improved mobile monetization and in the last quarter it rose more than the desktop.

"Also like FB, we believe there is significantly more advertiser demand that BABA management is choosing to monetize and a lengthy monetization ramp lies ahead," Sanderson highlighted.

Sanderson has a Buy rating and a price target of $130, which represents a potential upside of 21 percent over Friday's close of $107.71.

Within the first five minutes of Monday's regular trading session, Alibaba was down 1.09 percent at $106.54.

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