U.S. stock markets soared by double digits in 2023, with the S&P 500 Index trading near its all-time highs. Despite this robust market performance, finding cheap and undervalued stocks, especially in the tech sector, seemed challenging. Criticism mounted as analysts warned of overextended stock valuations following the unexpected 2023 rally. However, a resilient U.S. economy, declining inflation, and dovish signals from the Fed bolstered the bullish sentiment throughout 2023 after a lackluster previous year.
Two tech giants, PayPal Holdings (PYPL) and Alibaba Group (BABA), have consistently underperformed for three years. Alibaba stock trades just marginally higher than its 2014 IPO price, setting the stage for a potential rebound in 2024.
PayPal’s Tough Year
PayPal stock closed in the red for 2023, marking the third consecutive year of negative returns. The fintech giant faced sagging revenue growth, shrinking margins, and increased competition, including from ApplePay. Despite challenges, PayPal appears undervalued with a next 12-month (NTM) price-to-earnings (P/E) multiple of 11.6x, offering the potential for a 2024 rebound.
PayPal is focusing on profitable growth and has ramped up its share repurchases, noting a 7% reduction in outstanding shares over the last eight quarters. Aggressive buybacks can enhance per-share earnings, making PayPal an intriguing buy for 2024.
Potential for PayPal Stock in 2024
Analysts rate PayPal stock as a “Moderate Buy,” with a mean target price of $74.57, representing a 21.5% upside from current levels.
Alibaba’s Value Proposition
The Chinese e-commerce behemoth Alibaba has yet to create substantial investor wealth since its debut, facing challenges on both macro and company-specific levels. While it may seem to be a “value trap,” trading at a single-digit NTM P/E multiple, China’s pivot to a more controlled economy and intense competition have weighed down its valuations. The company’s restructuring efforts and potential listing of its business units could serve as catalysts for a stock reassessment.
Is Alibaba Stock a Buy for 2024?
Alibaba is making significant investments in share buybacks and initiated a dividend, with analysts expecting a strong rebound in 2024. The stock is undervalued despite its slowing growth, with a consensus “Strong Buy” rating from analysts. Moreover, as Chinese stocks look primed for a resurgence, Alibaba emerges as an attractive pick for patient investors seeking underpriced turnaround opportunities.