As investors shift focus from inflation to growth, Club stocks with China exposure stand to gain

Published Tue, Jan 3 20233:33 PM EST

As we kick off 2023, Wall Street appears to be shifting its focus from inflation to growth. Investors apparently believe the Federal Reserve has inflation under control after dramatically raising interest rates throughout last year. Now, those higher rates are fueling fears of a recession in the U.S. But the deepening U.S. economic slowdown comes just as China has moved to abandon its zero-Covid policy and reopen its economy after 3 years. While the U.S. has been forced to rein in its economy due to multi-decade-high inflation, China – the world's second-largest economy – has been weighed down by strict lockdowns since the onset of the Covid-19 pandemic. And with Beijing finally rolling back restrictions, the Chinese economy has nowhere to go but up, even as a surge in Covid cases is expected to temporarily hold up the reopening. As a result, Club stocks with exposure to China are seeing a boost, with the potential for their share prices, along with overall company growth, to accelerate in the coming months. We've long predicted the China reopening to be a when, not if, scenario and have been gradually building up our China-focused positions in recent months – key among them Estee Lauder (EL), Starbucks (SBUX) and Wynn Resorts (WYNN) — on the premise that trying to time an exact pivot on the China reopening is a fool's errand. At the Club, we're believers in taking on new exposure slowly over time, in order to improve our cost basis and get ahead of market sentiment improving. Patience is paramount. And our investment thesis is starting to pay off, with Wall Street expressing bullish optimism on our 3 key China-exposed holdings. Wells Fargo on Monday upgraded Wynn to overweight, or buy, from equal weight, while raising its price target to $101 a share, from $74. Analysts at Wells Fargo cited the reopening of China's Macao casino hub – where Wynn operates two properties – calling it "the best growth opportunity in Gaming." On Tuesday, analysts at Piper Sandler reiterated their overweight rating on Estee Lauder, while raising the bank's price target to $290 a share, from $255.The analysts believe that shares should be bolstered by the cosmetics giant's $2.8 billion deal to acquire Tom Ford , along with China's reopening. Lastly, analysts at Bank of America reiterated their buy rating on shares of Starbucks on Tuesday, while raising their price target to $125 a share, from $109, saying the coffeemaker "appears poised to benefit from China's long-awaited economic reopening." Still, the analysts cautioned, "the timing of this tailwind is still uncertain as the economy struggles with the fallout of policies [like] weak economic growth [and] widespread COVID outbreaks." Bottom line: If you wait for the economy to rebound and the current Covid surge to die down, you will have almost certainly missed the chance to pivot to China. (Jim Cramer's Charitable Trust is long EL, WYNN, SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

People use their smartphones to take photographs outside The Wynn Macau casino resort, operated by Wynn Resorts Ltd., in Macao, China, on Tuesday, Jan. 30, 2018.

Billy H.C. Kwok | Bloomberg | Getty Images

As we kick off 2023, Wall Street appears to be shifting its focus from inflation to growth.

Investors apparently believe the Federal Reserve has inflation under control after dramatically raising interest rates throughout last year. Now, those higher rates are fueling fears of a recession in the U.S.