How To Buy Alibaba Stock?

  • Alibaba will most likely begin trading on the NYSE on Sep 19 2014.
  • The chances for a retail investor to get stocks prior to listing, at the IPO price, are extremely low.
  • A good strategy would be to take up a pre IPO position in Yahoo or Softbank and use them as proxy stocks to cash in on the pre listing gain in Alibaba’s valuation.
  • Once the Alibaba listing is complete, investors can move funds from these proxy stocks to Alibaba stock, which will be available through any online brokerage account.
How to buy Alibaba stock

Alibaba (BABA) IPO is on the radar of every tech investor and it makes it that much tougher to get your hands on the stock at the IPO price of $60-$66. To most retail investors, the stock will only be available for purchase once it starts trading on the NYSE on Sep 19, 2014. So how exactly can a retail investor invest in the Alibaba IPO at its IPO price?

There is a very small chance for a retail investor to directly invest in Alibaba at its IPO price before the trading begins on NYSE. That would require you to have friends, family, or know some other insider to get any shares before that date. Like all IPO’s, it will require industry connections and very deep pockets to be able to secure stock shares at the $60 to $66 IPO price, with a fair assurance of allocation.

However, there are other indirect ways to benefit from the IPO valuation gains of Alibaba, which could happen before the listing on the NYSE. Investors can gain a back door into Alibaba stock through positions in the stocks of Yahoo or Softbank at their current prices. The stocks currently trade as proxies to Alibaba valuation due to Yahoo (24%) and Softbank (34%) owning a large share of Alibaba’s stock. The two stocks have traded in close resemblance to each other over the last few days as the market has been gripped by the hype surrounding the Alibaba IPO.

YHOO and SFTBY trading
Source: Google Finance

The two will continue to largely trade in relation to Alibaba valuation over the short term and therefore any positions in these could be used by investors to capture the pre listing gains from the Alibaba IPO indirectly.

Another benefit of indirectly investing in these scrips could be a lower volatility as internet IPO’s are notoriously famous for their post IPO volatility. An investor taking position in any of these can later sell these positions in exchange for Alibaba's stock to benefit from the Chinese E-commerce giants post IPO performance. Once trading on the NYSE, Alibaba stock can be brought through any regular online brokerage account an investor might have.

While it is true that the Alibaba stock might shoot up on the opening day, if you are an investor buying it for the long term the first day change in price shouldn't matter much. Alibaba’s solid growth, high profitability and cash flow margins should make it an attractive long term growth company which will eventually drive the stock higher too. Happy investing!!

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and BABA stock

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Will momentum stocks see a sell-off as retail investors take profits in order to speculate on $BABA?
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Virendra Singh Chauhan
That is a possibility. But more than the retail investors, it will be the institutional investors (Fund managers) who will need to buy into Alibaba stock to make up the $20+ IPO money.
To invest in Alibaba, they need money. And where will that money come from?? In all likelihood it will be a result of selling off other retail names like Amazon and eBay in order to maintain their E-commerce exposure as well as get a position in Alibaba. This could put pressure on the stock prices of Amazon and eBay.

However, given the hype surrounding the IPO, It is highly likely that retail investors get caught up in the frenzy and take profits to speculate on $BABA.
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