BABA Stock: Why Hedge Funds Are Rushing Into Alibaba

Retail investors aren't the only ones loading up on shares of Alibaba Group Holding Ltd. (NYSE: BABA) stock.

In Q3, Alibaba was the most purchased new stock among hedge funds. Now, institutional investors hold more than 227 million BABA shares.

baba stockAccording to tracking firm Whalewisdom.com, 12.9% of the 1,100 hedge funds it tracked bought into BABA stock during Q3. The next closest stock was Liberty Media Corp. (Nasdaq: LMCK). It was bought by 6.1% of hedge funds.

A Reuters report indicates the biggest buyer was Viking Global. That fund purchased 11.4 million Alibaba shares for roughly $1 billion. Third Point LLC with 7.2 million shares and Soros Fund Management with 4.4 million shares rounded out the top three.

The largest institutional holder of Alibaba remains Silver Lake Group, which owned a 2.5% stake in the company prior to the September IPO. Silver Lake sold part of its position through the public offering but still owns 54.7 million shares. As of today's (Tuesday's) opening price, that stake was worth $6.25 billion.

The Q3 rush by hedge funds is the latest bullish bet from Wall Street. Last month, Morgan Creek Asset Management's Mark Yusko told Reuters that Alibaba stock could more than double in the next three years.

Again, Money Morning was ahead of this trend. In fact, we've been very bullish on Alibaba stock throughout 2014, months ahead of the IPO.

Money Morning's Executive Editor Bill Patalon first told his readers about Alibaba's potential in early 2014. At today's opening price of $114.33, Alibaba shares have climbed 68.1% from their IPO price.

And that two-month return is just the start for BABA stock.

Patalon has repeatedly referred to Alibaba as the next Wal-Mart Stores Inc. (NYSE: WMT).

"Alibaba offers today's investors the same profit opportunity that Wal-Mart offered when it went public back in 1970," Patalon said. "We believe that Alibaba offers a similar long-term opportunity."

And he's not the only Money Morning expert that's extremely bullish on Alibaba. Here's why the company has such unprecedented potential...

BABA Stock: "Rewriting the Internet"

Alibaba's enormous size was on full display last week when China celebrated "Singles' Day." The holiday is like the opposite of Valentine's Day; single men and women celebrate their unattached status with parties and gifts.

In a 24-hour period, roughly $9.3 billion worth of merchandise was purchased over Alibaba's network of sites.

That's more than was spent in the entire United States last Thanksgiving, Black Friday, and Cyber Monday combined.

On Cyber Monday 2013, U.S. consumers purchased $1.7 billion worth of merchandise in 24 hours. On Singles' Day 2014, Alibaba alone sold $2 billion in products in just one hour.

For more staggering figures, check out the growth that's projected in the Chinese e-commerce market.

A recent study by the China Internet Network Information Center (CNNIC) determined the number of Internet users in the country will hit 800 million by 2016 or sooner.

The Chinese e-commerce market was a $298 billion industry in 2013. That made it the largest in the world. Analysts at the management consulting firm AT Kearny estimate that number will hit $390 billion for 2014. By 2017, it'll reach $718 billion.

Now consider this: roughly 80% of all online transactions in China take place over Alibaba's network of sites.

That's why our experts are bullish on Alibaba stock.

Money Morning's Chief Investment Strategist Keith Fitz-Gerald sees Alibaba's earnings per share (EPS) figures jumping significantly in 2015. BABA reported EPS of $0.45 - which matched consensus estimates - in last quarter's report.

"I think Alibaba is going to see $3 per share in earnings next year or roughly double the $1.45 analysts now expect on average," Fitz-Gerald said.

"I love Alibaba and I love what they stand for," he said during his regular appearance on FOX Business last week. "I've recommended Alibaba stock for a long time. I think the stock has a long way to go from here, and the company is going to rewrite the Internet."

So how high is the BABA stock price headed? According to Money Morning's Capital Wave Strategist Shah Gilani, there's no telling.

"I don't know that there is a ceiling for Alibaba. I think over time this is just one of those stocks you have to hold onto," Gilani said on FOX Business last week.

More from Keith Fitz-Gerald: Keith had a big smile when he saw a stock he recently recommended had already doubled. And the stock is still a great buy. In fact, there's plenty of room for this company to double - again...

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