The Internet analyst upgraded Yahoo stock to "overweight" and raised its price target from $37 to $43 per share.
"The bottom line: Obviously, Alibaba is nothing new to the Yahoo story, but we think as the IPO gets progressively closer, investors are going to put more weight in that Tencent comp, which I can get into, but that's going to yield a much higher valuation, and therefore you should own Yahoo," he said on CNBC's "Halftime Report."
Tencent Holdings, a peer of Alibaba traded on the Hong Kong Stock Exchange, has a market capitalization of $1.10 trillion.
Piper Jaffray was making a market in the securities of Yahoo! Inc. at the time this Munster's report was published.
Munster estimated that Alibaba is worth $221 billion including cash. Last month, valuation expert and NYU finance professor Aswath Damodaran estimated the company's value at $142 billion.
But Munster added that the Alibaba IPO itself wouldn't send Yahoo's shares higher immediately.
"We think that you wait until the IPO, wait until you print one quarter, and the all the excitement and they start talking about much higher valuation, and that's when you trade out of it ," he said.
Josh Brown of Ritholtz Wealth Management disagreed.
"I absolutely hate this idea," he said. "It requires really specific timing. You're not going to really be able to know if the peak is prior to the deal or after. That's No. 1.
"No. 2, if you don't like the underlying company, just buy Alibaba when it comes public. The whole thing is contrived. Yahoo has not created value in a very long time. Revenues are going down. The core business – it's not terrible. It's just not great."
— By CNBC's Bruno J. Navarro.