Top Internet Manager Says Alibaba Can Double From Here – Forbes
Alibaba is now the 2nd largest position in Tony Mitchell’s internet fund. Last month, Gorden Lam told us Alibaba Is A Better Investment Than Amazon. It is rare that two top managers agree on one of their best ideas. Alibaba has doubled in the past year, and Tony says it can double again. Here’s how.
Ken Kam: Alibaba is now your second largest holding, what attracted you to Alibaba?
Tony Mitchell: There were a couple of things that led me to believe that Alibaba may be the Amazon of China, and if it were, I wanted to be in on it.
In the early days, Alibaba was more focused on B2B, and was doing well with it, surpassing a million registered users by 2001 and becoming cash flow positive in 2002.
Alibaba has continued to innovate, reach out to consumers, and diversify offerings with Jack Ma leading the company since day one.
Kam: Alibaba has had a tremendous run over the last year – is it sustainable?
Mitchell: While I wouldn’t be surprised if we saw a pull back, and I am concerned about a big one if things escalate further with North Korea. In the long term I believe that Alibaba still has room to run. It has doubled in the last year from its low of $86.01 in December of 2016 to over $180., so I wouldn’t advise anyone to run out today and buy it, but I would buy it on a pullback.
Kam: Where do you think Alibaba will be in 2 years?
Mitchell: I am very concerned about North Korea over the next 6 months, but given a longer time frame of at least 2-3 years, I believe that Alibaba will double again within the next 3-4 years, meaning that if it does, it would average about a 20% year over year return during that time, and that is a return that I would be happy with.
Kam: Would you rather buy Alibaba or Amazon today?
Mitchell: I’ve liked Amazon for a long time. Unfortunately, I never liked the valuation and I missed a great run. However Amazon still has a much higher valuation than Alibaba, so I have to stick with Alibaba.
Amazon is trading at a PE of 245, while Alibaba is trading at a PE of 62, and while both have rich valuations, even if you discount Alibaba for its Geo-Political risk at 50%, it would still need to double to reach the valuation of Amazon.
My Take: Despite his cautious optimism about the market when I spoke with Tony early this year, his internet fund has grown 25% this year, far outpacing the S&P 500.
In February, Tony recommended Gilead, which was trading at about $70 then and has run up as high as $85 this year for a return of 21% in a little more than 6 months.
In March, Tony told us to stay away from SNAP which was trading at about $24 at the time, and has since traded below $12.
Tony started his Internet fund at Marketocracy in October, 2000. His returns have averaged 17.46% since then, way ahead of the S&P 500’s 3.36% return over the same period.
Over the last 10 years, Tony’s Internet fund did better than the top U.S. Equity fund manager and would rank in the top quartile for the last 1 and 3 year periods.
Tony’s internet fund is not a mutual fund. It is an investment option for clients of our separately managed account program. Before choosing an investment manager, you should always check out their track record. Here is Tony’s. For information about investing with Tony, click here.