Cathie Wood, the founder of Ark Invest, is well known for investing in disruptive technology and high growth themes. Ark Invest believes that the “global economy is undergoing the largest technological transformation in history” with “five innovation platforms evolving at the same time.”
These innovation platforms include energy storage, artificial intelligence, robotics, genome sequencing and blockchain technology. With these broad themes, Cathie Wood’s investments have been out-performers until the recent past.
The selloff in the Nasdaq has translated into a sharp correction in some of the favorite Cathie Wood stocks. I believe that these stocks remain fundamentally attractive. Even in the biggest of bull-markets, there can be sharp intermediate corrections.
Therefore, it might be a good time to snap-up some Cathie Wood stocks for the medium to long term. I believe that the following seven stocks are particularly attractive:
- Teladoc Health (NYSE:TDOC)
- Coinbase Global (NASDAQ:COIN)
- Sea Limited (NYSE:SE)
- Skillz (NYSE:SKLZ)
- DraftKings (NASDAQ:DKNG)
- Tesla (NASDAQ:TSLA)
- Shopify (NYSE:SHOP)
Cathie Wood Stocks to Buy: Teladoc Health (TDOC)
Cathie Wood has remained bullish on TDOC stock even after a decline of 30% year to date. TDOC stock is the top holding in the ARK Genomic Revolution ETF (BATS:ARKG).
Recently, the company’s CEO, Jason Gorevic opined that virtual healthcare “is here to stay.” It seems very likely that the correction is overdone. Even with relative deceleration in growth, Teladoc is interesting at current levels.
When the company reported first quarter results for 2021, the revenue guidance was revised higher to $2 billion (mid-range). This would imply healthy year-on-year revenue growth of 82%.
Further, the company expects paid membership to be in the range of 52 to 53 million. Sustained growth in paid membership is a key trigger for EBITDA margin improvement.
On May 11, the company launched myStrength Complete, which is an integrated mental health service. It’s worth noting that in FY2019, the mental health spending in the United States was $225 billion. A comprehensive suite of virtual solutions for mental health might be a potential growth accelerator for the company.
It’s also important to note that international revenue is still a small part of the company’s total revenue. With ample financial flexibility, the company is likely to pursue a bigger addressable market for sustaining healthy growth.
Overall, the deep correction provides a good opportunity for investors to consider some exposure to TDOC stock.
Coinbase Global (COIN)
After touching highs of $429.5 on the day of listing, COIN stock has been trending lower. It seems very likely that the stock will bottom-out around current levels.
Piper Sandler analyst Richard Repetto recently initiated coverage on Coinbase with an “outperform” rating. Richard believes that the company is a “trusted brand name” and has a “commanding position in the evolving cryptoeconomy.”
It’s worth noting that the number of crypto users globally swelled to 106 million as of January 2021. This might just be the beginning of wider adoption of cryptocurrencies as an important asset class. Coinbase stands to benefit from this trend.
Specific to Coinbase, the number of transacting users were one million as of December 2019. As of Q1 2021, the number of transacting users has swelled to 6.1 million. This is an indication of the robust growth trajectory for the company.
For the current year, the company has guided for revenue of $1.8 billion and EBITDA of $1.1 billion. This would imply a healthy EBITDA margin of 61.1%. Given the asset light business model and significant growth in users, the company is well-positioned to deliver healthy cash flows in the next few years. COIN stock is therefore attractive and worth holding in a long-term portfolio.
Cathie Wood Stocks to Buy: Sea Limited (SE)
Among Cathie Wood stocks, SE stock is one of the most attractive names. The company gives investors exposure to the high growth Southeast Asian digital wallet, e-commerce and gaming market.
For Q4 2020, the company reported total revenue of $1.6 billion, which was higher by 101.6% YOY. An important point to note is that at the group level, adjusted EBITDA was $48.7 million.
However, the company’s digital entertainment segment reported an adjusted EBITDA of $663.5 million. The e-commerce and digital financial services segment depressed the group EBITDA.
I don’t see that as a concern with all business segments on a high growth trajectory. Once operating leverage is achieved in the digital financial services and e-commerce segment, the company is well positioned to deliver robust cash flows.
For the current year, the company has guided for e-commerce revenue growth of 112.3% to $4.6 billion. Given this growth trajectory, SE stock looks attractive.
Sea Limited also reported cash and equivalents of $6.2 billion as of FY2020. This gives the company ample financial flexibility to pursue aggressive growth.
Overall, once the e-commerce and digital financial services segment starts delivering improved EBITDA, the company’s business will be a cash flow machine.
Even with a sharp selloff in SKLZ stock, Cathie Wood has continued to increase exposure to the stock. After touching a high of $46.3, the stock currently trades at $15.3. While there are some concerns related to the company’s growth, I believe that the correction is overdone.
In terms of concerns, the company reported 2.7 million monthly active users as of Q1 2021. For the comparable period in FY2020, the MAUs were 2.6 million. Clearly, user growth has been sluggish.
However, the company still reported revenue growth of 92% in Q1 2021. There are two reasons for strong growth. First and foremost, the number of paying MAUs increased by 81% YOY, even as total users stagnated. Further, the average revenue per user almost doubled in the comparable period.
Therefore, there are positives and with a big addressable market, the company has the potential to grow. It’s worth noting that sales and marketing expense for Q1 2021 was $96.3 million as compared to $46.8 million in Q1 2020.
The company has significantly accelerated its marketing efforts and this is likely to translate into strong user growth in the coming quarters. On the flip-side, if the increased spending does not deliver growth, the stock can turn lower again. However, for now, the selling seems overdone and a bounce-back is likely.
Cathie Wood Stocks to Buy: DraftKings (DKNG)
With a positive long-term outlook for online gaming and sports betting, DKNG stock is attractive after the recent correction. After touching highs of $74.4, the stock currently trades at $42. The stock currently has a “buy” rating from 18 analysts with a price target of $70.15. This would imply an upside of 77% from current levels.
For Q1 2021, the company reported 175% growth in revenue YOY to $312 million. One of the reasons for strong revenue growth was its debut in new states (Michigan and Virginia). As mobile sports betting and iGaming get wider approval from states, the company’s growth is likely to remain strong.
Another growth trigger for the company is monthly unique payers. For Q1 2021, the company reported unique payers of 1.5 million, which was higher by 114% YOY. At the same time, the average revenue per user increased from $41 to $61 in the comparable period.
On the flip-side, DraftKings reported adjusted EBITDA loss of $139 million for Q1 2021. Year over year, the company’s EBITDA losses widened. However, if top-line growth and paying user growth remains strong, cash burn is not a concern. The company has significantly increased selling and marketing efforts, which has widened the cash burn.
After touching a high of $900, TSLA stock has declined to current levels of $590. This seems like a good opportunity to start accumulating the leading electric vehicle player.
Cathie Wood has a price target of $3,000 for TSLA stock by FY2025. This would imply a market capitalization of $3 trillion. While it’s difficult to talk about any potential targets, the industry outlook is likely to remain bullish.
To put things into perspective, Deloitte believes that the electric vehicle industry is likely to grow at a CAGR of 29% over the next ten years.
In FY2022, Tesla is likely to commence production from the Gigafactory in Berlin. With production presence in the United States, China and Germany, the company is positioned to cater to incremental demand.
Importantly, logistics costs will decline with global production presence and this will have a positive impact on cash flows. Tesla has already delivered positive free cash flows in the last four quarters.
Tesla also has a strong pipeline of launches that includes Cybertruck, Roadster and Tesla Semi. This will ensure that vehicle deliveries remain strong in the coming years.
Cathie Wood Stocks to Buy: Shopify (SHOP)
SHOP stock is also among the names favored by Cathie Wood. After touching highs of $1,499, the stock has dipped to current levels of $1,088. While the stock still trades at a forward price-to-earnings-ratio of 248x, the growth factor is likely to ensure that the selloff does not persist.
For Q1 2021, Shopify reported revenue growth of 110% YOY to $988.6 million. The company’s subscription solutions revenue was $320.7 million, which was higher by 71%. As subscription solution revenue accelerates at a healthy pace, Shopify is well positioned to deliver healthy cash flows.
The company’s monthly recurring revenue also increased to $89.9 million as of March 2021. As online business scale-up, Shopify Plus can be a long-term game changer. Given its global presence, the company’s growth is likely to remain strong in the coming years.
Further, EBITDA margin and cash flows will accelerate on an asset-light business model. The company’s operating cost has declined significantly YOY.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.