Popular innovation investor Cathie Wood of ARK Invest has seen her funds sink at a rapid pace over the past few quarters. Her flagship ARK Innovation Fund (ARKK) has already lost over two-thirds of its value from peak to trough, thanks to a more hawkish Federal Reserve.
https://www.youtube.com/watch?v=HcOIYtMU4pw
As the Fed proceeds with its rate-hike schedule and the possibility of a double-point hike in May, rates on the 10-year note yield could easily continue to surge, adding even more selling pressure to ARKK and the high-multiple growth trade.
Despite the magnitude of the headwinds and the damage that's already been done to the ARK line of funds, Wood has not changed her stance on investing in innovation, insisting that investors think long term.
It is respectable that Wood has doubled down on some of the fallen darlings within the ARK basket. Eventually, such beaten-down names will bounce back with a vengeance.
Against this backdrop, we've used TipRanks’ Stock Comparison tool to evaluate three of the largest stocks within the ARK Innovation Fund. Let's dig deeper and see which stock has more room to run.
Teladoc has been a disaster for investors over the past year, shedding 64% of its value from peak to trough. Undoubtedly, the telehealth innovator was a major beneficiary of pandemic lockdowns. Amid the strength, investors got a bit overexcited, and eventually, the stock crumbled.
At writing, the stock trades at $64 and change per share. It's lost all of its pandemic gains and then some.
As one of the most beaten-down stocks in the ARK Innovation basket, bottom-fishers have a lot of reason to be intrigued. At just five times sales, Teladoc is hardly an expensive stock anymore.
The growth is still alive, with a guide of 25%-30% revenue growth for 2022. Teladoc CEO Jason Gorevic also remains incredibly bullish, previously noting of major tailwinds ahead, including the expansion of support from regulators.
It's not a mystery that TDOC remains one of Cathie Wood's most cherished plays. Wall Street analysts are also incredibly bullish on the name, with the average Teladoc price target of $99.17, suggesting ~53% upside from current levels.
Next up, we have Zoom Video Communications, a video-conferencing kingpin that's also suffered a massive reversal of fortune in the past year, sinking 72% from peak to trough.
Indeed, an overwhelming majority of the pandemic gains have been wiped out. With a mere eight times sales multiple and more favorable comparables ahead, the risk/reward has arguably never been this good in the pandemic era.
Remote and hybrid work is likely here to stay, even if the pandemic were to shift into endemic mode at some point. This alone should drive demand for digital communications. It's not just the firm's flagship video service that could drive growth in the road ahead, though.
For the latest quarter, the company clocked in an impressive 21% in revenue growth, with prominent strength in Zoom Phone and Zoom Rooms.
The recently launched Zoom Contact Center may also bode well for growth moving forward. With the recent strength across a broader range of offerings and a potential opportunity to create immersive metaverse-like experiences similar to Microsoft's Teams Mesh, there are many levers the firm can pull to keep its impressive growth alive.
Wood still views Zoom as an innovator, not merely a pandemic one-hit-wonder. I think she's right on the money.
Wall Street analysts share Wood's bullish view, with an average ZM stock price target of $162.56, suggesting ~46% upside from today's levels.
Tesla stock has held its own amid the tech-focused plunge, falling less than 40% from peak to trough. Today, shares of Tesla are down just 16%, far less damage than that endured by your average ARKK stock.
EVs remain one of the most exciting places to be in innovation these days. Though the EV pioneer has kept its stock supported by incredible quarterly results, it's worth noting that an increase in competition could threaten Tesla's spot at the top of the podium at some point in the future.
There's no denying the innovation going on at Tesla. Wood and many other Tesla bulls and Elon Musk fans may claim the rich, high-tech multiple on shares of TSLA is more than warranted, given the company's unparalleled innovative capabilities. Could it really be that Tesla is miles ahead of rivals, with a frontrunner position in autonomous driving?
It's hard to tell at this juncture. In time, rivals could close the gap on the battery tech front, leaving just the brand and autonomous hopes powering the stock's pie-in-the-sky multiple.
In any case, the stakes are extraordinarily high for the relatively resilient top holding in ARKK, which currently trades at 18.9 times sales.
For now, Tesla appears to be firing on all cylinders, with auto sales and margins continuing to power higher. Adjusted net profits for the fourth quarter came in at an impressive $2.88 billion, up from just $903 million posted a quarter prior. Arguably, such impressive growth deserves a rich premium multiple, even as investors sour on the growth trade. (See TSLA stock forecast on TipRanks)
Conclusion
While investors can get a good dose of innovation from the tech-heavy Nasdaq 100, which holds more profitable tech companies versus the ARK Innovation Fund, Wood argues that such indices aren't giving investors exposure to "true innovation."
The top three holdings within ARKK could provide more bounce once this tech sell-off finally ends.
