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Hedge fund manager’s top pick for wealth creation

Friday, 22 Nov 2013 | 1:52 PM ET
Hedge fund manager's top wealth-creation stock
Friday, 22 Nov 2013 | 12:19 PM ET
Softbank's stake in China's Alibaba means huge upside, Alex Sacerdote of Whale Rock Capital Capital Management says.

Softbank's stake in China's e-commerce behemoth Alibaba means huge upside for the stock, hedge fund founder Alex Sacerdote said Friday.

"It's the best setup we've seen since Apple in 2007 for large wealth creation," he said. "There's three things we look for. The first is a major market inflecting on the upturn, and China e-commerce is the mother of all s-curves. We've never seen anything like this."

Speaking to CNBC's "Halftime Report" from the Robin Hood Investment Conference in New York, Sacerdote said that Internet penetration in China is one major reason to believe in Alibaba's prospects.

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"In three years, they got to 5 percent penetration of retail sales," he said. "It took the U.S. 15 years to do that. And their 5 percent penetration's going to go to 25 percent much more so than other countries because what's happening in China, it's a key point, they're leapfrogging the offline retail.

"We've been building Walmarts for the last 40 years. They've been building steel mills," he said, adding that they also had great Internet access and a population that was going online at greater rates.

Alibaba's leading market share was another factor in its favor, Sacerdote said.

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"Then you look for the monster, the guy who owns the market," he said. "They have 80 percent market share of China e-commerce. They have 3 percent of China GDP flows through Alibaba. We think it's worth $250 billion. Most people think it's $100 to $150 (billion)."

Alibaba's business would add $90 billion of value to Softbank, whose market capitalization is $90 billion.

Meanwhile, Softbank also owns shares of Sprint, Japan Cellular and Yahoo Japan, worth $80 billion.

"You're getting this awesome company at a very low valuation," he said. "We just can't own enough of it."

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Sacerdote said his hedge fund, Whale Rock Capital Capital Management, holds positions in Softbank and Yahoo, which also owns a stake in Alibaba.

"We also own it through Yahoo, but Softbank is better," he said.

By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.

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