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Why This Beaten-Down Stock Could Be On The Verge Of A Breakout Higher

Why This Beaten-Down Stock Could Be On The Verge Of A Breakout Higher

Sentiment has bruised this stock, but one technical analyst says it could be about to surge higher.

Chinese tech stocks have been on quite the ride over the last year.

Between the ongoing trade war and fears of an economic slowdown in China, the BATS stocks—Baidu (NASDAQ: BIDU), Alibaba (NYSE: BABA), Tencent (OTC: TCEHY), and Sina (NASDAQ: SINA)—have been badly beaten up in the last couple of months. 

So badly beaten, in fact, that both Baidu and Sina are on track to close out the second quarter with their worst loss since at least 2010.

But Michael Binger, president of Gradient Investments, says there’s reason to have hope for the BATS stocks.

“I don’t think the BATS stocks are untouchable. I think you need to tread lightly,” Binger told CNBC. “I think sentiment more than fundamentals is weighing on these stocks.”

While he believes all four of these stocks could be in for a rebound, there’s one that he says is on the verge of a break out.

“I would really go with Alibaba,” Binger said. “Alibaba is the leading e-commerce company in China. It’s one of the leading e-commerce companies in the world. I think over the next 10-years it’s going to be a neck-and-neck race between Amazon and Alibaba. They have 600 million-plus active users and it’s growing fast. Their sales growth is north of 30%. It’s at the lower end of its valuation range, so yeah, I think you could step in right here.”

Like most Chinese internet stocks, Alibaba has been on a rollercoaster so far this year. BABA hit a bottom at the beginning of 2019 at $129, only to rebound to $195 by the start of May. The stock then fell -31% in May, but has bounced 13% in June.

The Street is bullish on the stock. There are currently 25 Buy ratings and 1 Strong Buy rating on BABA and analysts’ average price target for the stock is $218.12, suggesting possible upside of 28% over the next twelve months. And just last week, analysts at Macquarie set a price target for the stock of $226 – 32% higher than Thursday’s closing price.

However, not everyone is so positive on Chinese internet stocks.

According to Newton Advisors’ technical analyst Mark Newton, this group of stocks could see more downside ahead and aren’t a buy- at least not yet. 

Pointing to the KWEB China Internet ETF, Newton believes it could mirror any weakness in the U.S. markets.

“It’s acted very similar to how the U.S. has acted over the last year. We bottomed right near Christmas Eve, rallied up until the beginning of May, we peaked – we bottomed out in early June, and now we’re starting to roll over again,” Newton said. “My thinking is we do move lower short term to areas right near $39 … or potentially a bit lower.”

The KWEB includes Alibaba, Baidu, and (NASDAQ: JD), and the ETF would need to fall by -13% to reach the $39 level Newton has his eye on, a price breached in early June.

“I see a bit more lagging to go for China,” Newton said. “I do think this will be attractive potentially in a month or two on further weakness, but for now i think it’s an avoid.”

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