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1 Stock To Buy, 1 To Dump When Markets Open: Alibaba, Citigroup

Published 04/03/2022, 08:21 AM
Updated 09/02/2020, 02:05 AM

Despite the continuation of the Ukraine/Russia crisis, stocks on Wall Street ended modestly higher on Friday, as the release of solid U.S. employment data underlined expectations for tighter Fed policy in the months ahead. 

S&P 500 Daily Chart

The upbeat report sparked a rally in U.S. government bond yields, causing a closely watched part of the yield curve to invert for the first time since 2019. Two-year Treasury yields jumped to 2.46% on Friday, surpassing benchmark 10-year U.S. Treasury yields, which rose to around 2.39%. The inversion now raises the specter of a possible recession to come, as historically, such inversions have been known to precede recessions—however, this is not set in stone.

U.S. Bond Yields Chart

The week ahead is expected to be another busy one with all eyes on the minutes from the Federal Reserve’s most recent policy meeting, due for release on Wednesday. Earnings from notable companies like Constellation Brands (NYSE:STZ), Tilray (NASDAQ:TLRY), and Levi Strauss & Co (NYSE:LEVI) are also on the agenda.

Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.

Remember though, our timeframe is just for the upcoming week.

Stock To Buy: Alibaba 

Alibaba Group Holdings (NYSE:BABA), whose shares have managed to stage a mild recovery since falling to their lowest level since 2016 last month, could see increased buying activity in the days ahead amid easing fears that China’s most valuable technology company will delist from the U.S. stock market.

China's securities watchdog on Saturday proposed revising a key confidentiality rule involving offshore listings in order to satisfy the demands of U.S. regulators, marking Beijing's latest attempt to resolve a long-standing audit dispute with Washington.

The new proposal could open the door to on-site inspections by U.S. regulators, who demand complete access to such firms' audit working papers, which are stored in China. The previous draft stated that on-site inspection of overseas-listed Chinese companies be conducted mainly by Chinese regulators.

The changes will facilitate "cross-border regulatory cooperation, including joint inspections, which will help safeguard interest of global investors," the China Securities Regulatory Commission (CSRC) said in a statement on its website.

The CSRC said that Chinese and U.S. regulators had recently held multiple rounds of meetings and both sides had a willingness to solve their audit dispute so that Chinese firms can remain listed in New York.

BABA Daily Chart

BABA—which has climbed roughly 50% since falling to a six-year trough of $73.28 on Mar. 15—ended Friday’s session at $110.20. At current levels, the Hangzhou, China-based tech giant has a market cap of $313.3 billion.

Despite the recent bounce, Alibaba shares are still down about 7% year-to-date and are approximately 65% below their record peak of $319.32 reached in October 2020.

Alibaba shares collapsed throughout most of 2021, losing more than half their value amid Beijing’s antitrust crackdown aimed at strengthening regulations for companies with consumer-facing platforms and improving data privacy.

Stock To Dump: Citigroup

Citigroup (NYSE:C) saw its shares close at their weakest level since November 2020 on Friday. C could break down to new lows in the coming week as investors monitor distressing moves in the U.S. Treasury market after a key part of the yield curve inverted.

Bank stocks have historically performed poorly during times of inverted yield curves as they typically profit by borrowing money in the short term and lending it in the long term. As such an inverted yield curve, which, as mentioned earlier, is usually viewed as a reliable recession indicator, is likely to pressure bank margins and profitability.

Investors are also bracing for a disappointing earnings report from the fourth biggest U.S. banking institution, due on Thursday, Apr. 14 ahead of the opening bell. Consensus calls for Q1 earnings of $1.66 per share, plunging 54% from EPS of $3.62 in the year-ago period amid a jump in operating expenses. Revenue expectations are equally concerning, with sales growth predicted to slip about 5% year-over-year to $18.4 billion due to a sharp slowdown in its consumer banking business.

C Daily Chart

C fell to a fresh 17-month low of $51.76 on Friday, before closing at $52.33, earning the New York City, New York-based megabank a market cap of $103.2 billion.

Citigroup shares have underperformed those of the other big banks this year, losing 13.3% in 2022. In comparison, the financial sector’s main ETF—Financial Select Sector SPDR® Fund (NYSE:XLF)—is down just 2.1% year-to-date. The S&P 500, for its part, is off by 4.6% over the same timeframe.

Latest comments

Well that was a dog shit prediction.
how you got to paid....
hi
Advocating a chinese stock? Seriously? How can you look yourself in the mirror? What’s next? Rusdian vodka? Deplorable!
Has no clue what you are writing about! Jack ma of baba upset Chinese leadership and he and baba are toast having lost a lot of investors money. Don't touch it even with a pole. Citi restructuring and will do just fine
In the Barron’s paper, they say Citigroup could reach $112 over 3 years.
Of all the banks, Citibank has the biggest exposure in Russia. Think again! Huge loss writeoffs coming on April 14th.
 Total exposure to Russian assets of $9.8 Billion versus total assets under custody of $23.6 TRILLION (including loans and securities to Russian customers). Hardly a sizeable exposure. C has already said it won't fire sell assets immediately and it would be a gradual unwind. You presume, they hope the war in Ukraine will be over before forced to sell any highly profitable assets. Most analysts have an asset write-down of between $300 million to $1.5 Billion (depending on sell-off speed) versus a current analyst's projected net profit of $25 Billion in 2022. So might be a short-term 2% - 4% hit on the share price.....hardly a crash....
while bank stocks historically outperform during periods of interest rate increases, now several analysts are taking the unfounded contrary view that banks will do poorly because rising interest rates will negatively impact commercial and consumer loan demand. This view is ridiculous in light of a growing, post covid economy, nearly a record low unemployment rate, increasing wages and an insatiable demand for housing, despite mortgage rates approaching 5%. Mortgage rates are still extremely low historically. ( I bought a house in Los Angeles in 1989 and had a mortgage at 16%.)
What price was the home when you bought it at that time?
analyst infatuation with the inverted yield curve as prediictive of a recession is a joke. Looking at the predictive power of the inversion the joke is the inversion has predicted 12 out of the last 6 recessions. The other aspect of this “predictive” nature of the inversion is that it can take up to 2 years for a recession to occur after the 2/10 yield inverts. Totally useless yet the financial media continues to promote the claim that doom and gloom will surely follow the inversion.
Yes but all agree the economy cannot stay at this level with unemployment at <3.6% and inflation at >8%+ (potentially hitting 10%+, once the war's impact on energy/food and supply chains are factored in over the coming months). The Fed is trying to navigate a soft landing in very choppy and unpredictable waters - with a lot of factors outside of its control. It has never managed a soft landing before when inflation/oil has gotten so high and unemployment so low (including in 1972-1974, 1990, 2000 and 2007).  So much Fed liquidity/debt is still floating around that I cant see a major recession in the next 12 months. But can certainly see clouds on the horizon before the end of 2023 when you factor in huge global debt hangovers, taxation increases, and global inflation impacting regional stability (already riots and political unrest in Pakistan, Brazil, Sri Lanka etc over food/energy inflation).
Bots bots bots. Citi steady bounce on support poised to break out of down channel on next push up to resistance going in to the ER.
51 cents per share dividend. For a bank, it could be worse.
I would rather Own Citibank Shares than BABA
I trust more Citibank than Alibaba (at least at the NYSE)
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