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Ray Dalio - >>> 10 Best Growth Stocks To Buy Now According To Ray Dalio


Yahoo Finance

Sorina Solonaru

November 26, 2020


https://finance.yahoo.com/news/10-best-growth-stocks-buy-220447261.html


In this article, we present the list of 10 best growth stocks to buy now according to billionaire Ray Dalio. Click to skip ahead and see the top 5 best growth stocks to buy now according to Ray Dalio.

Ray Dalio is the Founder, Co-Chairman, and Co-Chief Investment Officer of Bridgewater Associates, the largest hedge fund in the world with over $140 billion in assets under management. Under his leadership of nearly four decades, the firm has grown into the fifth most important private company in the US, according to Fortune Magazine.

Bridgewater Associates has been one of the most successful hedge funds in the world, delivering average annualized gains of 10.4% since 1991. However, the fund had not evaded the negative impact of COVID-19 as its flagship Pure Alpha II fund had lost 18.6% through August.

Dalio is known for his grounded long-term perspectives. Although the fund suffered losses during the dot-com crash in 2000 (22%) and the financial crisis in 2008 (20%), it managed to bounce back with 20%+ gains between 2002 and 2004 and 45% and 25% gains in 2010 and 2011 respectively. Regarding the pandemic, Dalio commented previously that “We’re now in a wonderful revolution in terms of the capacity to think and use that in a way. I would say that is absolutely the most treasured thing in the future.” Undoubtedly, this year has provided plenty of opportunities for growth investments, not only in the usual tech space. Progress in medicine, conditioned in part by COVID-19, makes the health-care sector increasingly attractive. E-commerce is another industry that takes advantage from the pandemic, becoming the preferred buyer market worldwide. Dalio is giving special attention to Chinese stocks, given the relative attractiveness of China’s capital markets. In this vein, Bridgewater has arguably the most diversified portfolio in a decade, with massive investments made during Q3 in consumer staples, healthcare, e-commerce, and education stocks.

Hedge funds’ reputation as a whole has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. That does not mean their consensus stock picks can’t provide great value. Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our website to receive our stories in your inbox.

For the list of the best growth stocks to buy right now, we looked into Ray Dalio’s top positions in his fresh 13F filing and identified the 10 growth stocks with a P/E ratio of 30 or higher among these biggest positions. Here are the best growth stocks to buy right now according to billionaire Dalio:

10. New Oriental Education & Technology Group Inc. (NYSE:EDU)

We begin with New Oriental Education & Technology Group Inc. (NYSE::EDU), the most recognized brand in Chinese private education, currently valued at $3.7 billion. Having previously said that “not investing in China is risky”, Bridgewater expects great performance from the stock. Dalio's EDU position was worth $42 million at the end of September after boosting his EDU holdings by 46.3% in Q3.

The most recent news is New Oriental’s secondary listing on the Hong Kong stock exchange, closing on its first day of trading at HK$1,365, a 14.7% increase from its offer price. The company plans to invest the net proceeds in its business growth and geographic expansion. According to Yahoo Finance, EDU is trading at a trailing P/E of 72. The Chinese education company had total revenues of $2.45 billion in FY2018 and managed to increase this to $3.6 billion in FY2020.

9. Starbucks Corporation (NASDAQ: SBUX)

Next is Starbucks (NASDAQ: SBUX), the giant chain of coffeehouses and roastery reserves, valued at $115.3 billion. Dalio’s SBUX position was worth $47 million at the end of September after an incredible increase in holdings of 4524% in Q3. Clearly, Dalio has a tiny position in SBUX in Q2 and decided to build this into a full position.

Pershing Square Capital Management, which repurchased its stake in Starbucks in March, underlines the stock’s swift adaptation to the pandemic given its dominant position in the Chinese market. Here is what they had to say in their Q2 2020 Investor Letter:

"Despite short-term sales headwinds from Covid-19, Starbucks remains one of the world’s best businesses, which we believe will emerge even stronger from the current crisis. Starbucks results reported since we re-established our position have demonstrated that the company’s recovery plan is working. The company’s stock price has begun to reflect its business progress generating a total shareholder return of 39% from our average cost to repurchase our stake in the company.

Given the company’s leading presence in China, Starbucks was well-prepared for the arrival of Covid-19 in the U.S. After an outstanding start to the calendar year with same-store sales growth between 6% and 7% through mid-March, the company rapidly shifted to a drive-thru and delivery-only model. With 44% of the store base open, April same-store sales declined and bottomed at negative 65%. As management steadily reopened both locations and in-store ordering, same-store sales improved to negative 14% in July, with 96% of stores open. The sales recovery has been driven by store re-openings and underlying sales momentum, with same-store sales of stores open throughout the year improving from a low of negative 25% in April, to positive 2% in July. The recovery path in the U.S. closely parallels what Starbucks has achieved in China, albeit with a lag of about one quarter given the later arrival of the virus in U.S."

8. Abbott Laboratories (NYSE: ABT)

Bridgewater added 433,463 shares of Abbott Laboratories (NYSE:ABT) to its 13F portfolio during Q3, establishing a position worth $47.17 million. Hedge funds have been bullish regarding the health-care stock throughout Q2 and Q3, with all-time high ownership of 67 hedge funds tracked by Insider Monkey.

Polen Capital Management added ABT to its portfolio in Q2, and highlighted the company’s successful response to COVID-19 in its Q3 investor letter:

“Abbott Laboratories has also shown resilience. Abbott’s consumer-facing businesses collectively grew almost 10% in the first half of the year. Its Medical Devices business has also recovered swiftly with procedure volumes returning to 90% of pre-COVID levels in the quarter, and the company has been a leader in the development of various COVID-19 diagnostic tests.”

7. TAL Education Group (NYSE:TAL)

TAL Education Group (NYSE: TAL) is another Chinese company in the education sector that investors have been enthusiastic about in Q3. Bridgewater raised its stake in the company by 53%, valued at $52 million at the end of September. A total of 40 hedge funds tracked by Insider Monkey had holdings in the stock at the end of June, an increase of 5% from 2020 Q1 and the highest figure for this statistic.

According to Yahoo Finance, TAL is trading at a trailing P/E ratio of 1801 and is currently valued at $44 billion. Total revenues in FY2018 amounted to $1.72 billion and increased to $3 billion in FY2020. Nevertheless, the stock’s recent performance is a bit disappointing for its investors, as the stock returned only 8% since the end of June and underperformed the market's 18% gain.

6. McDonald’s Corporation (NYSE:MCD)

Next in the list of the best growth stocks held by Dalio’s Bridgewater Associates is McDonald’s Corporation (NYSE:MCD). It is a new addition to Bridgewater’s 13F portfolio, worth $77.02 million and consisting of 350,908 MCD shares.

Other hedge funds that see growth potential in MCD, currently trading at a trailing P/E ratio of 33, are Citadel Investment Group and D E Shaw with stock worth $205.7 million and $205.5 million, respectively at the end of September 2020. This is in contrast with the overall bearish sentiment towards MCD, as 14% less hedge funds tracked by Insider Monkey hold positions in the stock in Q3 compared to the previous quarter.

5. Costco Wholesale Corporation (NASDAQ: COST)

Fifth in the list of the best growth stocks bought by Ray Dalio’s Bridgewater Associates is the American multinational Costco Wholesale Corporation (NASDAQ: COST). The fund purchased 218,662 COST shares worth $77.63 million at the end of September. 61 hedge funds were long in the stock at the end of Q2, down by 10% compared to the first quarter.

Costco is trading at a trailing P/E ratio of 43, according to Yahoo Finance, and the company’s latest e-commerce revenues figure is $26.05 billion. The biggest positions in the stock belong to Berkshire Hathaway and Fisher Asset Management, worth $1313.9 million and $995.4 million, respectively at the end of Q3. Saturna Capital Corporation, the investment management company of Sextant Mutual Funds, stated the following about COST in its Q1 2020 Investor Letter:

“For those not signed up for Amazon Prime, there’s still Costco, another firm in an enviable position when consumers are stocking for hard times.”

4. Pinduoduo (NASDAQ:PDD)

1,094,888 shares of Pinduoduo (NASDAQ:PDD), the Chinese Internet giant, is the amount held by Bridgewater in its 13F portfolio on September 30, giving the firm a stake worth $81.2 million at the end of September. Not only Dalio has great expectations from PDD’s performance, as hedge fund sentiment towards the stock has been bullish since Q2, when the number of hedge fund positions increased by around 7% from the previous quarter.

Pinduoduo’s fast growth is indisputable, as the e-commerce channel registers a year-over-year revenue growth of about 89% for Q3, amassing 14.2 billion Chinese Yuan ($2.2 billion). Continuing its customer-centric approach, PDD launched in August a new service called Duo Duo Maicai, hoping to expand market share against its rivals. Nevertheless, Tao Value, an investment management firm that has held bullish positions in PDD for a long time, signals the challenges that the company might face. Here is that Tao Value had to say in its Q3 2020 investor letter:

“Pinduoduo (ticker: PDD) dragged 93 bps this quarter. Investors had high expectation on Pinduoduo coming into this quarter, yet the reported Q2 GMV & revenue fell short of such hype. The stock dropped 14% on the earnings day alone. On business side, management indicated its strategic shift to develop technology solutions for the vast, yet under-digitalized agriculture value chain in China. I think it is a difficult but meaningful problem to tackle.”

3. JD.Com, Inc. (NASDAQ:JD)

Dalio slightly increased the position in JD.Com, Inc. (NASDAQ:JD), the technology-driven Chinese retailer. Bridgewater’s stake in the JDD is currently worth $129.5 million at the end of September, up by 21% from a quarter earlier. 87 hedge funds held positions in the stock at the end of June against the all time high of 90 at the end of the first quarter.

JD.com announced a positive earnings surprise of 30% in Q3, and its stock returned 35.5% since the end of June (through 10/16), outperforming the market by an even larger margin. According to our calculations, JD.Com, Inc. ranked #27 in our 30 most popular stocks among hedge funds, 2020 Q1 rankings. Here is Dan Loeb’s optimistic review of the two e-commerce giants, JD and Alibaba:

“During the quarter, we took advantage of jitters about China’s relationships with Hong Kong and the U.S. that created an air pocket in trading of Chinese-related shares to establish new positions in e-commerce leaders Alibaba and JD.com. As we have articulated in prior letters3, our outlook for Alibaba and the broader Chinese e-commerce market is bright. We believe online gross merchandise value (“GMV”) will grow at a mid-teens CAGR over the next five years, propelled by both (1) rising consumption per capita, as the Chinese retail market is equal in size to the U.S. despite four times as many consumers, and (2)increased penetration of retail by online, a trend which we believe has been structurally accelerated by the COVID- 19 pandemic.

As the e-commerce market matures, we believe Alibaba & JD will leverage scale and growing repositories of transaction data to increase monetization of their platforms through targeted advertising to improve revenue yields (revenues as a percentage of GMV) from a starting point of less than 4% today. As a point of comparison, brick-and-mortar retail store rent expenses in China are greater than 10% of sales on average, which provides a significant umbrella for online marketplaces to take a greater share of GMV through a combination of commission and advertising spending as online retailer cost structures converge with brick- and-mortar retail.”

2. Alibaba Group (NYSE: BABA)

Bridgewater fortified its stake in Alibaba Group (NYSE:BABA) during Q3 by 40%, valued at $392.2 million, a much larger position relative to the one in Alibaba’s rival, JD.Com. The stock was in the portfolios of 166 hedge funds tracked by Insider Monkey at the end of September. Our calculations also showed that BABA ranks #4 among the 30 most popular stocks among hedge funds.

BABA gained around 30% from the end of Q2 (through November 24). In its Q3 2020 Investor Letter, Rowan Street Capital highlighted Alibaba’s control over the entire value chain:

“Alibaba’s integrated ecosystem connects and controls the whole value chain of branding, broadcasting, sales conversion and sharing. That’s very different from how it works in the U.S., where internet giants such as Amazon, Facebook and Alphabet are individually dominant in certain parts of the value chain, but not in the complete manner that Alibaba has achieved. None has an ecosystem that connects the entire marketing and commerce value chain from branding, broadcasting and sales conversion. Alibaba connects the entire value chain.

[…] We believe the odds are still in our favor to earn long-term double-digit compounded returns from our Alibaba investment even from current market levels.”

You can read more about their analysis of Alibaba here.

1. SPDR Gold Trust (NYSE:GLD)

This isn’t really a growth stock you might think. However, it really is. Investors buy gold because they think its price in terms of US dollars will or could go up. It may go up a lot if printing trillions of dollars out of thin air to cover the budget deficits becomes the standard operating procedure of the Federal Reserve and the U.S. Treasury. Investors usually invest in gold as a hedge.

There were a total of 65 hedge funds with long GLD positions at the end of the third quarter. There are also other hedge fund managers who invest directly in physical gold, so the actual number of hedge funds that invest in gold is much higher. The total value of hedge funds’ GLD positions was nearly $3.5 billion. Ray Dalio has the largest position in GLD among all hedge funds tracked by Insider Monkey. Dalio’s GLD bet was worth $967 million.

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