The New York-traded stocks of Yahoo! Inc. (NASDAQ:YHOO) may be valued too cheaply by the market, according to Dan Loeb, a New York-based hedge fund manager. 

Loeb, whose fund Third Point Avenue owns a significant stake in Yahoo, made his case in his fourth quarter letter to investors.

The value of Yahoo can be broken down to three components: its core U.S. business, its 35 percent stake in Yahoo Japan and its 40 percent stake in Alibaba, a Chinese e-commerce company.

Yahoo's stake in Alibaba alone, however, may be worth close to what Yahoo is trading at right now, which is around $14 per share.

Loeb cited a November 2011 report from UBS that valued Yahoo's stake in Alibaba at $13 per share. In December 2011, Bloomberg News also reported that Yahoo was considering a deal that would value its Alibaba and Yahoo Japan stakes around $14 per share. In the deal, Yahoo would retain a 15 percent stake in Alibaba and sell its entire Yahoo Japan stake.

Loeb said he sees tremendous upside in just the Alibaba piece of the Yahoo puzzle.

He touted the company's leading position in the Chinese B2B e-commerce market, C2C e-commerce market, B2C e-commerce market and online payment market.

Moreover, China's internet user base, already the largest in the world, is expected to turn into the world's next e-commerce superpower, surpassing the U.S. e-commerce in transaction value by 2015, according to a report from the Boston Consulting Group.

Alibaba's 2011 revenues, meanwhile, has grown to $2.3 billion, up 77 percent from last year, reported Eric Jackson of Forbes.

Wall Street has continued to neglect the underlying Alibaba valuation story and the press makes too little of it...The scale and velocity of China's e-commerce opportunity, when combined with Alibaba's dominant position, make for a very compelling story, wrote Loeb.