According to analysts, a good undervalued blue chip stock to buy

We recently published a list of 7 undervalued blue chip stocks you should buy now. In this article, we take a look at how Alibaba Group Holding Limited (NYSE:BABA) compares to other undervalued blue-chip stocks.

Kristen Bitterly, head of global strategy at Citi, recently appeared on CNBC's Squawk Box to discuss the role inflation and employment trends have played in the Fed's recent decisions. Bitterly explained that while they had expected a 25 basis point rate cut due to some tough inflation data, particularly in the area of ​​owner-equivalent rent, she noted that the difference between a 25 or 50 basis point cut should not be over-analyzed. The key is the overall path of interest rates going forward, and as long as employment data remains stable, the Federal Reserve and the market are looking for a soft landing.

Bitterly spoke about cutting rates at a time when stock markets were at record highs and unemployment was low, acknowledging that the timing was unusual. Rate cuts usually occur during crises, but she suggested that the Federal Reserve may be trying to get ahead of a potential economic slowdown. She stressed that the Fed's primary focus is on employment and price stability, not necessarily on stock market highs. Now that inflation is somewhat under control, the focus has shifted to keeping unemployment at around 4%.

When asked about potential inflation risks, Bitterly pointed to ongoing infrastructure, CHIPS Act and IRA spending, which could indeed lead to inflationary pressures. While the Fed's projections that inflation could fall to 2.5% may be too optimistic, she pointed out that this is more likely to be disinflation than deflation.

With strong retail sales, Bitterly emphasized the strong economic picture, pointing to $6.5 trillion in money market funds, falling inflation and record profitability among U.S. companies. Despite concerns such as election volatility, she believes there is still plenty of capital willing to flow into the market, making for a positive outlook. Bitterly predicted that the S&P 500 would likely finish the year in positive territory, although October could be difficult due to election-related uncertainty. Historically, election years see a decline in October as investors take profits, but once the election results are clear, a rebound usually follows.

Looking ahead to next year, she expects a return to fundamentals, with 10 out of 11 sectors expected to grow earnings this year and potentially all sectors growing in 2025. She stressed that while tariffs and taxes are important factors, they are ultimately driven by policy rather than politics.

Our methodology

In this article, we looked for large- to super-cap stocks trading at a P/E ratio of less than 20. We identified 20 blue-chip stocks that met our criteria and then selected the stocks that were most popular among elite hedge funds in Q2 2024 and that analysts were optimistic about. The stocks are sorted in ascending order of their upside potential (as of September 24).

At Insider Monkey, we are obsessed with the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

An e-commerce platform that presents a wide range of products to customers online.

Alibaba Group Holding Limited (NYSE:BABA)

Upside potential for analysts: 15.79%

Expected P/E ratio as of September 24: 10.49

Number of hedge fund owners: 91

Alibaba Group Holding Limited (NYSE:BABA) ranks 3rd on our list of 7 undervalued blue-chip stocks to buy now. Alibaba Group Holding Limited (NYSE:BABA) has initiated a major restructuring by splitting the company into six business units, each with the potential for an independent IPO. This move is expected to increase value for shareholders. In the second quarter of 2024, Alibaba Group Holding Limited's (NYSE:BABA) core commerce business was stable, and its cloud computing division continues to grow, supported by China's push for digital transformation.

In the second quarter of 2024, Alibaba Group Holding Limited (NYSE:BABA) showed stable performance, especially in its core commerce business, while its cloud computing division continues to grow, benefiting from China's digital transformation initiatives. This growth is supported by rising demand for cloud services and e-commerce, giving Alibaba Group Holding Limited (NYSE:BABA) a favorable position in these high-growth sectors.

In addition, Alibaba Group Holding Limited's (NYSE:BABA) focus on cost management and strategic partnerships within the Chinese technology ecosystem enhances its recovery prospects, especially amid the rebound of the Chinese economy. Alibaba Group Holding Limited's (NYSE:BABA) investments in artificial intelligence (AI) and e-commerce platform innovations position the company well for future growth and enable it to capitalize on emerging market trends.

With a P/E ratio of 10.49 and a market cap of $230.4 billion, Alibaba Group Holding Limited (NYSE:BABA) appears undervalued relative to its growth potential. Overall, the combination of restructuring efforts, strong performance in core areas, and strategic investments make Alibaba Group Holding Limited (NYSE:BABA) a promising candidate for long-term growth and value creation.

Total BABA 3rd place on our list of undervalued blue chip stocks to buy now. While we recognize BABA's potential as an investment, we believe AI stocks that fly under the radar promise higher returns and do so in a shorter time frame. If you're looking for an AI stock that's more promising than BABA but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.