Some investors have been worried about the recent sell-offs across the global stock markets. The so-called “Carry Trade” between currencies has been abandoned since the Bank of Japan recently decided to hike interest rates. Meanwhile, the Federal Reserve in the United States is holding the promise of cutting interest rates before 2024 is over. This uncertainty created fear for the stock market, so the S&P 500 sold off sharply.
However, markets are now in recovery mode, and some on Wall Street have not lost faith in further upside for the stock market. Namely, Buffett is choosing to go to the typical route historically performed during times of uncertainty: the energy sector. His choice in Occidental Petroleum Co. (NYSE: OXY), as he bought up to 29% of the company, is on one end of the strategy. Cathie Wood’s recent dip-buying in the technology space is on the other end of the strategy.
Wood started buying into some of the best technology names in the market today, some of which are arguably in the deepest discounts they have been during the 2020-today cycle. Included in her list of value shopping, investors will find Amazon.com Inc. (NASDAQ: AMZN), Robinhood Markets Inc. (NASDAQ: HOOD), and even dared to venture into the cryptocurrency space through Coinbase Global Inc. (NASDAQ: COIN) during the recent sell-offs across the stock market.
Amazon Stock: Double-Digit Upside Potential Despite Market Uncertainty
Here is the connection that Cathie Wood spotted between the end of this carry trade and the potential upside for Amazon stock. The carry trade indirectly bets that the Fed will start cutting interest rates soon, and the CME’s FedWatch tool has essentially priced in a rate cut for as soon as September 2024.
This means two things for Amazon. First, domestic demand could start to see a boost as consumer discretionary activity increases as interest rates go lower because the interest on credit cards will be more manageable for consumers to return to spending.
The other implication is that a weaker dollar in this carry trade could strengthen other foreign currencies, where Amazon buyers are in countries like the United Kingdom and other European nations. Knowing this, Wall Street analysts forecast up to 22.8% earnings per share (EPS) growth in Amazon for the next 12 months.
Leaning on these bullish factors and double-digit growth, those at Rosenblatt Securities decided to reiterate their “Buy” rating for Amazon stock, this time raising their price targets to $221 a share. To prove these analysts right, Amazon stock would need to rally by 33.2% from where it has recently dipped.
Robinhood: The Underdog Challenging the Entire Financial Sector
Is it a bank, a brokerage, a retirement solutions provider, or a credit card provider? Robinhood stock now fits most—if not all—of the above.
During this week's market crash, other brokerages, like Charles Schwab Co. (NYSE: SCHW), experienced a systems crash due to volume overload, which makes sense as most retail investors were probably looking to stop the bleeding in their accounts.
Robinhood's platform never came down, though, and that was the value and quality stamp for Cathie to buy some of that stock this week. According to Robinhood's latest quarterly earnings presentation, assets under custody (AUC) rose by 65% in the year to reach $130 billion, a growth rate likely below that of peers in the financial sector.
With Wall Street analysts forecasting 10.5% EPS growth in the next 12 months, investors like Cathie Wood probably have guessed that these projections are on the more conservative end of the spectrum. Analysts at KeyCorp called on this fact by placing a price target of $25 a share for Robinhood stock, daring it to rally by 44.5% from today's prices.
Bitcoin's Crash Opens a Prime Buy Opportunity for Coinbase Stock
Part of a market crash is that no prisoners are taken. Everything from stocks to bonds to commodities and even cryptocurrencies also goes down. This is where Cathie Wood’s view on Bitcoin helped her decide that Coinbase stock was a clear buy for her capital.
Seeing Bitcoin and cryptocurrencies as a store of value is the modern version of Buffett buying Occidental Petroleum stock because he expects oil prices to go higher on this carry trade unwind. While more sophisticated, the Coinbase case is right up the same alley.
This is why the current forecast for an EPS decline of 31.9% set by Wall Street might have triggered some of the contrarian opinions in the market. Among these contrarians, those at JMP Securities took the podium, as they now place a valuation of $320 a share for Coinbase stock.
To prove this valuation right, Coinbase stock must make a decent run of 70% from where it has fallen today. Of all these dips, Coinbase is the biggest one, as the stock now trades at 75% of its 52-week high, creating the biggest potential recovery rally opportunity.
