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The black swan event of the pandemic resulted in a market meltdown in March 2020. However, with expansionary monetary policies supporting growth, a big rally followed. If there is one reason to remember the rally, it’s the surge in stocks focused on innovation and new technology.
It was therefore not surprising that Cathie Wood’s ARK Invest outperformed during this period. Cathie is well known for her investments in new-age technology. While several Cathie Wood stocks delivered multi-fold returns, the last two quarters have been challenging.
As markets focused on post-pandemic investment themes, there was the flow of funds away from stocks that skyrocketed during the pandemic. Also, with contractionary monetary policy coupled with fears of recession, growth stocks have plunged.
Near-term sentiments remain bearish. However, there is little doubt on the point that several businesses will survive and continue to grow in the long term. It’s therefore a good time to consider exposure to some Cathie Wood stocks that look attractive on the valuation front.
Cathie Wood Stocks To Buy
Top 4 Best Cathie Wood Stocks that are Attractive after a Big Correction
Here are the 4 best Cathie Wood stocks for 2022 after a big correction:
1. Zoom Video Communications
Zoom Video (NASDAQ: ZM) has slumped by 71% over a 12-month period. A major reason for the correction is the growth outlook after the pandemic. However, the correction seems to be overdone and ZM stock looks attractive at a forward price-to-earnings ratio of 26.2.
Recently, ARK Invest provided a 2026 price target of $1,500 per share. This would imply multi-fold returns from current levels. Even in a bear-case scenario, ARK Invest has a price target of $700 for the share.
For Q1 2023, Zoom reported revenue growth of 12% to $1.1 billion. Clearly, there has been a significant deceleration in top-line growth. However, amidst slower growth, there are several positives.
Zoom reported cash and equivalents of $5.7 billion for Q1 2023. For the last quarter, the company’s free cash flow was $501 million. With strong renewals and migration to long-term plans, cash flows visibility is robust.
Also, there is ample financial flexibility to invest in innovation and potentially pursue inorganic growth. With the acquisition of Solvvy, the company has already expanded its addressable in Conversational AI to $18.4 billion by 2026.
It’s also worth noting that for Q1 2023, the company derived 67.8% of revenue from the Americas. There seems to be ample scope for expansion in international markets.
Here’s our detailed analysis of Zoom Stock for 2022.
2. Roku
Like most Cathie Wood stock picks, Roku (NASDAQ: ROKU) has also been in a correction mode. The stock has slumped by 77% in the last 12 months.
However, it’s worth noting that Roku stock has trended higher by 16% in the last one-month. It seems that the correction is overdone and the stock is poised for a reversal rally.
ARK Invest has an optimistic price target for Roku stock at $605 by 2026. This would imply 6x returns from current levels. The stock price is based on a bullish forecast for revenue growth from the video advertising and display advertising segment.
If monetization can be in-line with estimates, Roku might be positioned for strong cash flow upside in the next few years. This is likely to take the stock higher.
For Q1 2022, Roku reported revenue growth of 28% to $738 million. The important point to note is that the average revenue per user increased by 34% on a year-on-year basis to $42.91. If this growth sustains, EBITDA margin and cash flow upside are likely.
Based on Q1 2022 numbers, Roku already has an annualized operating cash flow potential of $400 million. Overall, active accounts have been trending higher coupled with ARPU growth. Roku stock seems attractively valued considering these two important metrics.
3. Coinbase Global
Cryptocurrencies have plunged with the Federal Reserve pursuing contractionary monetary policies. It’s not surprising that crypto stocks have also witnessed a massive correction.
For investors who are bullish on the long-term outlook for cryptocurrencies, this might be the best time to buy crypto stocks. Coinbase (NASDAQ: COIN) is one stock that’s worth considering.
After a euphoric listing in 2021, Coinbase stock has been in a downtrend. As speculative trading activity declines, the company’s revenue and cash flows have been negatively impacted. However, at current levels of $60, the stock is worth adding to the portfolio.
Even in the crypto bear market, Coinbase has pursued product development. This includes the launch of Coinbase NFT and a steady increase in the adoption of Coinbase Wallet. The number of assets traded on the platform has also been increasing on a consistent basis.
Another point to note is that Coinbase has also witnessed growth acceleration during the bull market from institutional investors. Once sentiments reverse, retail and institutional investors will trigger renewed growth.
Overall, Coinbase is positioned for long-term growth with a healthy cash buffer. The regional expansion will be another factor that will boost growth. The deep correction, therefore, provides an attractive entry opportunity.
4. Tesla
Even for Tesla’s (NASDAQ: TSLA) stock, Cathie Wood has an ambitious long-term target. The leader in the electric vehicle business seems to be positioned to create value as cash flows swell.
One reason to like Tesla is the fact that the company has Gigafactory in all major regions. In the medium-term, the company will benefit as production from the European factory is ramped up.
Tesla also plans a Gigafactory in Southeast Asia. With an annualized operating cash flow potential of $16 billion, there is ample financial flexibility to make big investments.
Another reason to like Tesla is its strong line-up of new models. In the next few years, Cybertruck, Roadster, and Tesla Semi will boost delivery growth.
Tesla still has to make inroads into potentially big markets like India. Further, there is ample headroom for EV penetration in all key markets. Of course, competition is a concern. However, with an innovation edge, Tesla is likely to maintain a market leadership position.
Overall, TSLA stock has witnessed a meaningful correction in the last two quarters. This is a good opportunity to consider fresh exposure.
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