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.
BRIDGEWATER ASSOCIATES
Ray Dalio of Bridgewater Associates
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.
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.
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.”
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.
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.
