Famed innovation investor Cathie Wooden’s flagship ARK Innovation ETF had a 2021 to neglect, down 22% over the previous yr, whereas the Nasdaq has galloped 61% larger. Lots of her favourite inventory picks have busted, and traders is likely to be questioning whether or not she’s misplaced her contact.
Concern not; success within the inventory market hardly ever strikes in a straight line. I’ve recognized three Cathie Wooden favorites which have had tough years however are poised to snap again into profitable type in 2022.
ARK’s wager on telehealth firm Teladoc Well being (NYSE:TDOC) has been considered one of its largest concepts in 2021. The inventory has fallen a whopping 70% from its highs earlier this yr, but Teladoc nonetheless represents roughly 5.8% of the market worth in ARK’s Innovation ETF, the fund’s third-highest weighting.
Teladoc’s income progress quickly picked up throughout the peak of lockdowns when folks have been much less keen or capable of go to a bodily physician’s workplace. Income progress soared to a triple-figure tempo, so it is solely pure that progress would revert decrease once more as lockdowns ended; it is exhausting to take care of triple-digit progress! However the market has bought the inventory off anyway, doubtlessly thinking that the business was reliant on COVID for its progress.
Paradoxically, the inventory has bought off a lot that it is now cheaper than earlier than COVID, with a price-to-sales ratio of simply over seven. In the meantime, administration has guided for 25% to 30% income progress per yr by way of 2024, which means that the corporate will construct on its COVID-driven progress as a substitute of giving it again.
In different phrases, the expansion Teladoc noticed throughout the pandemic is right here to remain, and the corporate will add to it within the years to come back. With a compressed valuation, traders may see the inventory start to replicate the anticipated progress over the subsequent a number of years.
Streaming is one other massive thought at ARK, and smartTV and ad-tech platform Roku (NASDAQ:ROKU) is arguably the king of the streaming world. The inventory is down greater than 50% from its highs and carries the second-highest weighting in ARK’s Innovation ETF at simply over 6%.
Roku’s had an identical downside to Teladoc; it noticed progress speed up throughout lockdowns, and investor sentiment is popping on Roku now that progress is slowing within the face of the upper 2020 figures it is needed to observe. Its most up-to-date quarter, 2021’s third quarter, noticed 23% account progress yr over yr, considered one of its lowest-growth quarters in years.
The inventory’s valuation has come again right down to “regular” after the sell-off, but the enterprise appears robust shifting ahead. Consumer progress could gradual some, however Roku is within the early phases of its worldwide growth, so there’s nonetheless an extended runway to select up new customers.
In the meantime, common income per consumer (ARPU) grew 49% yr over yr in 2021 Q3, exhibiting that Roku’s momentum in earning profits from its consumer base stays robust. Traders may see continued natural progress start to drive the share worth as soon as once more, now that the froth in the stock’s valuation has burned off.
Cryptocurrency stays a brand new and thrilling trade for traders. ARK has been including shares of cryptocurrency expertise firm Coinbase World (NASDAQ:COIN) to the ARK Innovation ETF for the reason that firm’s IPO earlier this yr. The inventory is the fifth-highest weighting within the fund, at roughly 5%.
The inventory is down about 40% since hitting highs a few months in the past, and the corporate’s fast progress has pushed the inventory’s P/S ratio down all year long. Coinbase generated $1.2 billion in web income in 2021 Q3, a greater than fourfold improve yr over yr.
Cryptocurrencies might be risky at instances, and Coinbase’s core enterprise is its trade, the place it will get income from cryptocurrency trades on its platform. The thriller surrounding cryptocurrency and its long-term outlook may make traders slightly unsure of Coinbase, which could clarify among the sell-off the inventory has seen, regardless of its progress.
However a compressing valuation leaves extra room for upside as Coinbase continues to develop. If cryptocurrency adoption continues, Coinbase can be probably the greatest shares for publicity to the sector’s progress. In the meantime, non-fungible tokens (NFTs) are rising in reputation, and Coinbase’s looming NFT marketplace might be a catalyst that helps push the inventory upward in 2022.
This text represents the opinion of the author, who could disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even considered one of our personal — helps us all suppose critically about investing and make choices that assist us change into smarter, happier, and richer.