News Classic

• Chinese stocks are poised for a huge run-up in the next year, according to Renaissance Macro’s Jeff deGraaf.

• The research firm CEO said perfect conditions are aligning for additional gains exceeding 50%.

• Other notable investors have been looking to buy the dip in Chinese stocks amid continued stimulus efforts.

China’s stock rally isn’t over — and the nation could have the perfect cocktail of ingredients to stage a monster run-up over the next year, according to one Wall Street forecaster.

Jeff deGraaf, the CEO of Renaissance Macro Research, says he sees China’s benchmark stock index climbing to 6,000 over the next year. That implies a 54% increase from the CSI 300’s current levels, thanks to the right mix of conditions in Beijing that should power equities higher, he told Bloomberg on Friday.

“Skepticism, valuation, stimulus, momentum and a trend change,” deGraaf said of China’s investing environment, adding that it was “one of the best set-ups” he’s seen over his 35-year career.

Chinese stocks have been on a roller coaster in recent weeks after Beijing announced its latest monetary stimulus package, which included lowering interest rates and pumping the stock market with $114 billion. The package sparked the steepest rally in Chinese stocks since 2008 before it quickly fizzled, a sign investors were disappointed Beijing didn’t announce more stimulus measures.

Markets, though, are expecting the nation to announce a fresh fiscal stimulus package at a briefing on Saturday, potentially reviving the bull case for stocks. Most investors expect China to add 2 trillion yuan, or $283 billion, in fiscal stimulus through 2025, according to a Bloomberg poll of market participants.

“We see the policy response as self-preservation, a reaction to the weakness and a potential Mario Draghi-esque ‘Do what it takes’ moment for China,” deGraaf said, later urging investors to “keep stops in place” when betting on Chinese stocks.

Other traders on Wall Street have shown interest in buying the dip in Chinese equities, despite fear that Beijing’s economic slowdown could stick around.

Investors poured a record $39.1 billion into Chinese stock funds in the week ending October 9, according to EPFR Global data cited by Bank of America in a note.

“We buy any China dips,” BofA strategist Michael Hartnett wrote in a note. Stimulus efforts will continue to “be used aggressively to boost domestic animal spirits and demand,” he added.

Additionally, the Shenzhen Huaan Hexin Private Investment Fund Management Co., a Chinese hedge fund up 800% since 2017, also says it’s buying the dip in technology stocks listed in Hong Kong. The Hang Seng Index has dropped 3% over the last five trading days, but is still up 27% from levels at the start of the year.

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“Such a correction is more like a buying opportunity,” Yuan Wei, the fund’s founder, said in an interview with Bloomberg this week. “If you compare to their fundamentals, the stocks remain very cheap.”

China’s onshore market has a 50% chance of starting a new bull run, as opposed to a short-term bounce, and the bear market in equities should be over by now, Yuan said.

“The market is just rebounding from an extremely bearish level to a level that’s still undervalued,” he later added.

Other strategists on Wall Street have made bullish calls on Chinese equities in recent weeks, with eyes on continued stimulus measures in Beijing. Goldman Sachs predicted China’s stock market could rally another 20%, thanks to “more substantial policy measures” and Chinese stocks being oversold, strategists said in a note.

Read the original article on Business Insider

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Warren Buffett and Cathie Wood typically don’t agree on much when it comes to assembling a portfolio. Only rarely have they owned the same company.

But there’s one growth stock that both of these investors love — Latin American fintech Nu Holdings (NYSE: NU) — so much so that they have invested nearly $1.5 billion combined into the business. And yet many investors have never heard of this company.

You can use this ignorance to your advantage by snapping up shares at an incredible discount.

This growth stock is a proven winner

It’s not often that you can buy a proven growth stock at a reasonable valuation, nonetheless a discounted valuation. That’s because once a growth trajectory has begun, the market rushes to price that proven potential into the stock.

This is, in part, what makes growth investing so challenging. You can buy and hold a stock that grows revenue by 500% over your holding period. But if the market had been pricing in 600% growth, you could still end up underperforming the market.

How do you get a discount on a proven growth stock? Just look at one that the market is ignoring — like Nu Holdings. And that might be the reason shares trade at just 32 times forward earnings, even though its bottom line has skyrocketed in recent years.

The issue for Nu isn’t a lack of famous investors. Buffett owns a bit more than $1.4 billion in shares through his holding company, Berkshire Hathaway — a position it has held since Nu’s initial public offering (IPO) in 2021. And through her company ARK Invest, Cathie Wood owns around 1.5 million shares of Nu, worth roughly $20 million.

The issue isn’t scale, either. Right now, Nu has more than 100 million customers. The issue is simply that Nu operates in just three countries: Brazil, Mexico, and Colombia. Unless you live in one of these nations, you likely have never heard of Nu — and certainly have never used its services.

What exactly is Nu’s business? It’s a fintech that offers a suite of financial services directly to customers through their smartphones. This might not sound so innovative today, but it was in Latin America in 2013.

Back then, a few stodgy incumbents controlled most of Latin America’s banking industry. Nu took the market by storm, offering more advanced services at a lower cost, available to anyone instantly through the device in their pocket.

There was clearly a lot of pent-up demand. Nu’s customer base went from essentially zero to more than 100 million over its first decade in business. And new product lines like its crypto trading platform surpassed 1 million users in its first month of operation.

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Suffice it to say that the financials look great for Nu. Two years ago, its sales base had just surpassed $2 billion. Today, it’s approaching $8 billion. Meanwhile, earnings have flipped positive — a trajectory that is likely to be sustained for years to come. Over the next five years, for example, analysts expect earnings to grow at an average of 54% annually.

Should you follow Wood and Buffett into Nu stock?

Nu has an incredible story, a proven track record, and a reputable platform to build on. And its valuation — just 32 times forward earnings — is almost too good to pass up.

Just don’t think this will be a smooth ride. After its IPO, Nu shares actually lost 70% of their value over the first year of trading. Shares have completely rebounded since, but it’s a good reminder than rapid-growth stocks are often at the mercy of market volatility. The multiples assigned to these companies can vary widely based on market sentiment.

Like Buffett and Wood, I’m a big fan of Nu Holdings as an investment. But as with most stocks, it will be patience that ultimately generates the biggest returns. Don’t buy unless you’re willing to hold through the downward swings.

Don’t miss this second chance at a potentially lucrative opportunity

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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.

Warren Buffett and Cathie Wood Agree: This Growth Stock Is a Buy was originally published by The Motley Fool