Cathie Wood has become the poster person for growth stocks. During 2020 and 2021, growth stocks were on top of the finance world. In 2022, it has been a completely different story, as growth stocks have been crushed. Still, many investors want to know the best Cathie Wood stocks to buy.
Despite the terrible price action of growth stocks in 2022, there are some quality companies in this group. That doesn’t mean they’ve hit their lows or that the first quarter or the first half of 2023 will be much better than 2022.
However, eventually the market will go from bearish to bullish, and the Fed will transform from hawkish to dovish. When that happens, many of today’s terrible growth stocks will be tomorrow’s new leaders.
So what are a few of the best Cathie Wood stocks to keep an eye on? Let’s look at three of them now.
Best Cathie Wood Stocks: Zoom Video (ZM)
I’m trying to stick with Cathie Wood’s top ten holdings across her Ark funds and weighing in at No. 1 is Zoom Video (NASDAQ:ZM). Now down 88% from its all-time high, Zoom Video has been taken to the woodshed.
Much like Cathie Wood became the face of growth stocks, Zoom Video became the face of pandemic stocks.
Consequently, I wouldn’t be surprised if the stock falls further. That’s especially true given the jobs recession we’re seeing in tech and the potential recession that the global economy faces. Plus, the $60 level has been key for ZM stock, and the shares are still about $6 above that mark.
That said, we’re talking about a firm that’s profitable and generated more than $1.1 billion of free cash flow over the last 12 months. Further, the shares trade at just 17.5 times analysts’ 2022 mean earnings estimate.
On the downside, while analysts do expect mild revenue growth this year and next year, they anticipate a mild earnings decline in both years as well. At a lower price —such as $60 — Zoom Video may be worth buying.
Best Cathie Wood Stocks: Tesla (TSLA)
You can’t read about the stock market right now without reading about Tesla (NASDAQ:TSLA). Some observers say that the sharp retreat of Tesla stock is due to the automaker’s CEO, Elon Musk, taking over Twitter and filling in as its acting CEO. Others argue that simple bear-market mechanics are at play.
But both factors can be at play. There are worries that demand is slowing for its EVs in China, while Musk is trying to head several companies at once and the economy is slipping into a recession And simultaneously, risk-free assets (like U.S. Treasury bonds) are becoming more attractive for investors.
All of these factors may help explain why Tesla hit new 52-week lows in eight straight sessions recently.
That said, for long-term buyers, it may be worthwhile to take a closer look at the name. First, the shares of Tesla are trading at their lowest price-earnings ratio ever, changing hands for about 27 times this year’s earnings.
Analysts, on average, still expect the automaker to deliver more than 50% revenue growth this year and almost 40% growth next year. On the earnings front, the mean estimates stand at 79% growth this year and 35% growth next year.
However, these are just estimates and as I acknowledged, stocks are in a bear market. But given the decline of Tesla’s shares, the stock is beginning to look undervalued based on its long-term outlook.
Unity Software (U)
I’m not sure if Unity Software (NYSE:U) will retest its low near $21, but if does, U may be worth a close look. That’s particularly true if analysts’ estimates don’t get revised lower.
Unity stands out to me because of its impressive growth. Analysts, on average, expect a 23.5% revenue gain this year, but more than 60% growth next year. While Unity expects to report a slight loss this year, analysts’ estimates call for a swing to profitability in 2023.
Unity is a relatively young company as it went public just over two years ago. So during a bear market, its shares could face increased selling pressure. That said, this type of growth shouldn’t be overlooked.
When the company reported earnings in November, it delivered better-than-expected guidance for next quarter and the full year. That may not matter lift U stock in the next quarter — or in the next several quarters — but it will maa difference eventually.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.