Cathie Wood of ARK Invest is among the most well-known growth-oriented fund managers. Her flagship ARK Innovation ETF (ARKK) lost over two-thirds of value last year. However, year to date (YTD) the ETF has gained 55% and is outperforming the Nasdaq Composite ($NASX) by a wide margin in 2023.
Despite the rise in 2023, ARKK is still well below its February 2021 peak. Almost all of the holdings of the ETF are growth names and many are loss-making companies – the latter has especially been out of favor with investors amid tightening credit markets.
Fed’s rate hikes led to a turmoil in growth stocks and Wood’s favorite names plummeted. However, the US CPI rose at an annualized pace of 3% in June – down 6.1 percentage points from the peak in the corresponding month last year.
The Fed’s June dot pot showed another 50-basis point rate hike in 2023 and markets are almost unanimous that Fed would raise rates by 25 basis points later this month. However, the CME FedWatch Tool shows that investors believe that interest rates in 2024 will be lower than what they currently are.
Put differently, traders believe that Fed will stop raising rates later this year and cut them next year amid a slowing economy. If Fed indeed embarks on monetary policy easing, growth names including Cathie Wood stocks might see better days ahead. I believe Teladoc Health (TDOC) and Meta Platforms (META) are two Cathie Wood stocks that look like a buy now.
Cathie Wood has warmed up to Meta Platforms stock
Meta Platforms stock hit a 52-week high last week and with gains of 156%, it is the second-best performing S&P 500 (SPY) stock this year. Wood has been gradually buying Meta stock over the last month making it the first time since 2021 when she bought shares of the Mark Zuckerberg-led company.
Zuckerburg has described 2023 as the “year of efficiency” for Meta and looking at the price action, markets have welcomed the company's cost-cut actions. Meta now expects its total expenses in 2023 to be between $86 billion to $92 billion – which is significantly below the $94 billion to $100 billion that it forecast originally.
Meta’s cost-cut efforts would help it boost its earnings and analysts expect its earnings to rise 21.8% and 25.6% respectively in 2023 and 2024 – which is over twice the expected revenue growth in both these years.
It has also launched Threads which would compete with Elon Musk’s Twitter and the platform has hit the milestone of 150 million users within a week. To put that in perspective, it took ChatGPT around 2 months to reach 100 million users Incidentally, Wood bought more Meta shares after the launch of Threads, and ARKK’s stake in the company is now valued at around $50 million.
While there are risks associated with Meta, I believe it is still one of the Wood stocks worth buying now.
Teladoc Health Stock Looks a Good Buy
Teladoc Health was among the so-called stay-at-home winners and like other companies in the once coveted group, it is also witnessing a growth slowdown.
Take, for instance, its revenues rose 98% in 2020 and 85.8% in 2021. However, in 2022, its revenues rose “only” 18.4% which is below the 32.4% growth that it reported in 2019 – the last year before the COVID-19 pandemic.
The company’s growth is expected to slow down further this year and it has forecast a topline growth between 7%-11% for 2023.
However, I believe that the healthcare market hasn’t still been disrupted by digitization, unlike many other industries. It is no wonder then that tech giants like Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT) have made forays into healthcare.
Earlier this year, Teladoc Health launched an integrated app and during the Q1 2023 earnings call it said that the app has higher user engagement and multiproduct utilization.
While Teladoc Health posted a massive loss of $13.5 billion in 2022 it was on account of impairment charge as it wrote down the value of its assets in all four quarters last year. The company expects to post positive free cash flows of $100 million in 2023 which looks encouraging.
In terms of valuation, TDOC looks reasonably priced at 1.56x its forward revenues. Wall Street analysts have a Moderate Buy rating on TDOC stock and its mean target price of $31.37 is 26.6% above its current market price.
Coinbase is 1 Cathie Wood stock to sell after the rally
Wood is among the biggest backers of cryptocurrencies and blockchain and ARK Investment Management holds a 6.5% stake in cryptocurrency exchange Coinbase (COIN) – which makes it the second biggest stockholder.
Wall Street looks bearish on the stock though and analysts rate COIN stock a Hold:
Of the 22 analysts that cover COIN, 5 rate it a Strong Buy, 1 a Moderate Buy, 9 a Hold, 2 a Moderate Sell, and 5 a Strong Sell.
Coinbase stock has more than tripled this year and the rally gained traction last week after a US federal judge ruled in Ripple’s (XRPUSDT) favor and said that the XRP token is not a security.
Coinbase believes that the court ruling strengthens its case as it is also involved in a legal battle with the SEC which accuses it of “operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.”
Speaking with CNBC, Coinbase’s chief legal officer Paul Grewal said, “I think we will win. Now, I thought we would win before this decision. We think this decision has only further strengthened the case.”
However, I believe there is still too much regulatory uncertainty associated with cryptocurrency regulation given the SEC’s crackdown and would avoid COIN stock at least at these price levels as it now trades at 9x its next-12-month sales which looks on the higher side.
On the date of publication, Mohit Oberoi had a position in: ARKK , META , TDOC , AMZN , GOOG , AAPL , MSFT , QQQ , SPY . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
