How to Dump the Right Stocks to Buy the Alibaba IPO

NEW YORK (TheStreet) -- A few weeks ago, there was a popular hypothesis being bandied about on business television that investors might dump Yahoo! (YHOO) shares in order to buy stock in the upcoming Alibaba (BABA) initial public offering.

The thinking went, why would someone want to keep shares of Yahoo!, which only owns a piece of the Chinese e-commerce company, when they could buy Alibaba's stock directly?

Read More: 8 Stocks George Soros Is Buying in 2014

Sadly, those who took this advice, missed out on the move of Yahoo! shares from $32 in late July to a 52-week high of $42 on Tuesday.

It turns out that Yahoo! investors were under-valuing its total collection of assets and had to update the value of the shares once they started to realize that the valuation of the company's existing and remaining Alibaba shares would be much higher than expected.

Nevertheless, there may be something to this idea that investors might dump one stock in order to free up cash to buy another.

In general, I am a bit skeptical of this idea.

Remember all the "cash on the sidelines" that bulls have been saying might get put to work in this market? A lot of that excess cash might find its way into various mutual funds and hedge funds that decide to get into Alibaba shares.

Therefore, there may be no need to sell one stock to buy another.

However, it is fair to remember that this Alibaba deal is huge. The company is expecting to sell $22 billion worth of stock.

That means that underwriters are likely hoping to gin up interest among investors to buy about $60 billion of the stock to cause enough pressure to push up the price of the deal.

Read more: Alibaba Chooses NYSE for IPO

If they are going to stoke that kind of demand, it is quite possible that we will see some selling pressure.

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