China -- Tune Out the Noise and Buy This Stock

You're hearing a lot of dire talk about China during this U.S. presidential election year, especially from Republican presidential nominee Donald Trump. It's nativist nonsense, and if you believe it, your portfolio will suffer.

As an investor, don't get spooked by the demagogic rhetoric. The threat of a U.S.-China trade war is way overblown. Nor is China's economy on the ropes. You should put money into the world's second-largest economy, which still offers explosive (and reliable) growth if you make the right choices.

Which brings us to internet juggernaut Alibaba  (BABA) .

Combine Amazon, Twitter, eBay and Alphabet's YouTube into one entity, add a population of 1.4 billion, and you get China-based Alibaba, a diversified internet play with staggering potential. Here's why it's one of the most exciting growth stocks you can find, especially as U.S. equities continue to languish.

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Headquartered in Hangzhou, China, the online and mobile commerce giant released robust second-quarter operating results on Wednesday, underscoring not only the company's appeal as a long-term investment but also the resilience of China's much-maligned economy.

Alibaba.com, the primary company of Alibaba, is the world's largest online business-to-business trading platform for small businesses. Alibaba also owns the Chinese video site Youku Tudou, often called the "YouTube of China," as well as a roughly 20% stake in Sina's Sina Weibo, the country's popular micro-blogging social media site. In addition, Alibaba operates a consumer-to-consumer portal Taobao that's similar to eBay.com.

That's quite an impressive conglomeration, all fueled by China's growing and increasingly affluent middle class. At the same time, China's government is making a multibillion-dollar push to improve internet infrastructure, a move that will steer more consumers into Alibaba's grasp.

While Alibaba's better known U.S.-based counterparts hog the media spotlight, this underappreciated Chinese equity is on track for double-digit capital appreciation and serves as a reminder that investors shun China at their peril.

Alibaba Group reported Wednesday that its revenue soared in the quarter ending in September, as the wide variety of big consumer brands and smaller entrepreneurial vendors on its online shopping platforms spent heavily on digital advertising.

China's gross domestic product grew an annual 6.7% in the September quarter of 2016, the same pace as in the previous two quarters but down from 6.9% for full-year 2015.

However, despite the modest slow down in the Middle Kingdom, Alibaba has enjoyed prosperity as shoppers pivot away from bricks-and-mortar shopping outlets and toward Alibaba.

Alibaba reported that second-quarter revenue rose a whopping 55% to $5.14 billion from the same period a year ago. Earnings dropped 69% from the same year-ago quarter to $1.06 billion, due to a one-time accounting gain that had boosted the previous year's bottom line.

Alibaba generates sales from advertising and fees paid by the vendors that set up virtual stores on its platforms. To offset the plateauing of China's growth, the company has increasingly deployed sophisticated ad tools that target advertisements to specific types of consumers. The company also is expanding its footprint into foreign markets, especially India, by signing up international brands that pay a fee to sell products on its platforms.

With a market cap of $246.27 billion, Alibaba is investing in cloud computing and digital entertainment, segments that are still underperforming for the company but that should pay off down the road. Akin to Amazon Web Services, Alibaba's cloud-based services offer corporate clients a platform for user-friendly, back-end computing capabilities. Cloud service revenue in the most recent quarter more than doubled from the same quarter a year ago to $224 million, but it racked up a $60 million operating loss.

The next big event to watch: China's "Singles' Day" on Nov. 11, a frenzied national shopping holiday similar to America's "Black Friday." Largely the brainchild of Alibaba, Singles' Day celebrates bachelor life and has become the world's biggest online shopping event. The company typically reaps a windfall during the holiday; now would be the most opportune time to buy the stock.

Alibaba stock is trading at a trailing 12-month price-to-earnings ratio of 35, relatively cheap compared to 49.6 for its industry.

Before the market opened on Thursday, Alibaba shares traded at $97.50. The average analyst one-year price target for the stock is $119.62, which suggests the stock can gain 23%.

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As U.S. equities continue to lag, you should consider China-based stocks like Alibaba. We've pinpointed other exciting investment opportunities that offer robust and reliable returns for growth-hungry investors. They're flying under the radar, so you should act now, before the rest of the investment herd catches on. Get the free details here.

John Persinos is an investment analyst at Investing Daily. At the time of publication, he owned none of the stocks mentioned. Persinos appears as a regular commentator on the financial television show "Small Cap Nation." Follow him on Twitter.

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