Profiting from the Bounce in China

10/29/2015 10:00 am EST

Focus: STOCKS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

It looks like Mr. Market is recovering from his recent bout of depression, as he always does. The Dow is trading at a two-month high and even much-reviled China has staged a comeback, explains Nicholas Vardy, editor of Bull Market Alert.

Our latest featured recommendation is Chinese video game firm and Web portal NetEase, Inc. (NTES). This is a bet that this rebound in China will continue over the next six to eight weeks as we get into the meat of Q4.

Here’s why I expect NetEase to soar in the coming weeks:

First, sentiment about the Chinese economy is improving. Just overnight, the government announced that China's economic growth eased to 6.9% in the third quarter from a year earlier, beating expectations. Robust consumption and infrastructure spending prevented a much-feared slowdown.

Second, Chinese Internet stocks are a high-risk, high-return way to play the current bounce in the Chinese market.

From a fundamental standpoint, Internet stocks are immune from a slowdown in industry. But from a technical standpoint, they also tend to be more volatile, outperforming on the upswings.

Third, NetEase has arguably the best prospects among the major Chinese Internet stocks for gains over the short-term. NetEase is among China's fastest-growing Internet firms, racking up big successes, especially in the mobile game space.

Its "Fantasy Westward Journey Mobile" rose to No. 1 among Apple iOS apps in China within three days of the game's recent launch.

Management also has faith in NetEase after it announced in early September that its board had authorized a $500 million stock buyback plan. So buy NetEase at market today and place your stop at $110.

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