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Saturday, September 06, 2014

How to Buy Alibaba Before the IPO

Most investors are aware that Alibaba, the Chinese e-commerce company that got its start as a business-to-business portal, is going public, with its Initial Public Offering scheduled for later this month. This is expected to be the largest technology IPO in US history.

This is expected to be a very hot offering, so unless you are a good client of one of the major underwriters, such as Goldman Sachs, J.P. Morgan, Morgan Stanley, or Citi, the chances of you getting shares on the IPO are scarce.

Fortunately, there are a couple was of getting shares ahead of time, albeit indirectly. The technique is to buy stock in companies that own a substantial amount of the Alibaba stock.

I did this many years ago with Apple stock before it want public. There was a closed-end fund called the Nautilus Fund that owned shares of Apple before the IPO. I bought shares of Nautilus, and when Apple went public, Nautilus spun off a pro-rata set of shares to investors.

So there are a couple of publicly traded companies that own Alibaba, according to the company's F-1 Form that it filed with the SEC. The first is Yahoo (YHOO), which currently owns 523.5 million shares of Alibaba or 22.4%. It will be selling off 4.9% of Alibaba's shares, and holding on to 401.8 million shares or 16.3% of the company. Yahoo currently trades at 33 times trailing earnings and 30 times forward earnings.

The other company that owns a significant portion of the Alibaba shares is SoftBank (SFTBY), the Japanese based telecom and Internet company. SoftBank owns 797.7 million shares of Alibaba or 34.1% of the outstanding share, and has no plans to sell any of the shares of the IPO. SoftBank trades at 16.8 times trailing earnings.

Hopefully, Alibaba will provide an Open Sesame to your portfolio's profits. If you like interesting stock lists like this, you should check out the lists of stocks at WallStreetNewsNetwork.com, most of which are free.

Disclosure: Author owns YHOO.

By Stockerblog.com

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