Alibaba Stock Could Replace These Major Mutual Fund Tech Holdings

A new report from The Wall Street Journal indicates that Alibaba stock (NYSE: BABA) could begin trading on the New York Stock Exchange as soon as Sept. 18.

The Alibaba IPO has become the biggest story on Wall Street this fall, as it's expected to be one of the largest initial public offerings ever. Many estimates call for a $20 billion price tag on the deal. Even conservative estimates expect the Alibaba IPO price to top the $16 billion Facebook Inc. (Nasdaq: FB) raised in 2012, which stands as the largest tech IPO ever. 

Alibaba stock signThe size of the IPO, and the company itself, will make Alibaba stock a hot commodity in the coming weeks. When Facebook stock began trading in May 2012, more than 579 million shares exchanged hands on the first day. Alibaba should see even more action.

But it won't just be retail investors who flood into Alibaba stock in coming weeks...

According to Reuters, there's a long list of mutual funds and ETFs that plan on adding large quantities of BABA stock to their holdings.

Funds that designate large percentages of their holdings to foreign markets or technology will likely be the first in line for Alibaba stock, but they won't be the only ones. Alibaba is expected to have a valuation anywhere between $150 billion and $200 billion, which would make it one of the 20 biggest firms trading in the United States. Because of its size, it will attract a wide audience.

"It is the 8,000-pound gorilla coming for the stock market," RS Investments' portfolio manager Michael Reynal told Reuters.

While this may be music to the ears of Alibaba officials, it's bad news for some other major tech stocks. As these funds add BABA to their holdings, they'll have to boot some other underperforming stocks. Here are some of the candidates that could go.

Alibaba Stock Could Replace These Tech Giants

As mutual fund managers prepare for the Alibaba IPO, they've spent plenty of time researching which of their holdings are best to replace.

"Any company that didn't meet expectations and give a rosy outlook is probably being considered as a sale candidate to make room for a name like [Alibaba]," Jim O'Donnell, CEO of the mutual fund Forward, told Reuters.

alibaba ipo chartOne of the biggest names that could be on the chopping block is Amazon.com Inc. (Nasdaq:
AMZN). Year to date, AMZN stock has dipped nearly 15%, while the Nasdaq has climbed almost 10%.

In its last earnings report, Amazon missed estimates by 80% and posted a loss of $0.15 per share. Looking forward, things could get even worse. Currently, 35 analysts polled by Yahoo! Finance expect AMZN stock to post an EPS loss of $0.75 this quarter, well below last year's loss of $0.09 per share.

AMZN's profit margin was just 0.2% in its last report, and its operating margin was just 0.8%.

Alibaba is frequently compared to Amazon, because they are both the e-commerce leaders in their respective countries. However, comparing the two just makes Amazon look bad.

In 2013, Alibaba's most popular site, Taobao, handled $177 billion in transactions. Approximately $70 billion exchanged hands over Alibaba's second-largest site, Tmall, during the same time. Amazon handled just $100 million.

But Amazon isn't the only candidate for replacement. eBay Inc. (Nasdaq: EBAY) could also get booted.

EBAY stock is mostly flat in 2014, compared to the gains for the Nasdaq, and it last reported a profit margin of -0.65%. When it comes to transaction totals, eBay handled just $54 billion in 2013, or $193 billion less than Alibaba.

Mutual funds may not remove their entire positions in major tech firms like Amazon and eBay, but instead reduce their positions. However, major reductions in one, or both, of those e-commerce plays seems the most likely course of action for mutual funds.

That's especially true as Alibaba continues to widen its gap between AMZN and EBAY...

Incredibly, the number of Chinese e-commerce users is expected to hit 520 million by 2015 - more than double the number in the United States.

"According to the research I've seen, e-commerce in China is projected to hit $540 billion by 2015, and that's just for starters. By 2020, China's e-commerce market will be worth more than the United States, the United Kingdom, Japan, Germany, and France combined. So we know that growth is coming... and we know that Alibaba is the No. 1 gun."

Join the conversation on Twitter @moneymorning and @KyleAndersonMM using #Alibaba.

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