Nasdaq Bear Market: Cathie Wood Is Still Bullish on These 3 Beaten-Down Growth Stocks

Cathie Wood, the founder and CEO of Ark Invest, rose to reputation through the coronavirus pandemic because of her agency’s profitable bets on among the most disruptive tech firms. Her flagship exchange-traded fund (ETF), the Ark Innovation ETF (ARKK 5.54%), skyrocketed 153% in 2021, prompting many traders to intently watch her buying and selling strikes as indicators for what they need to do with their very own portfolios. 

But then, the fast pandemic-fueled development loads of Wood’s holdings had been benefiting from dissipated, and their inventory costs plummeted. The tech-heavy Nasdaq Composite Index entered a bear market in 2022, and ended it down 33% for the yr. One lesson traders can be taught from final yr’s market is that even probably the most revolutionary companies can see their shares crash. 

However, this actuality hasn’t stopped Wood from remaining optimistic about innovators. Here are three beaten-down growth stocks that Wood continues to be bullish on. 

Roku 

Streaming video platform chief Roku (ROKU 6.58%) has been coping with some main points recently, and its shares cratered 82% in 2022. Inflationary pressures have resulted in larger manufacturing prices for its {hardware} merchandise, and administration has determined to not move these larger costs on to clients, resulting in a adverse {hardware} gross margin over the past six quarters. 

Additionally, the weaker advert market is hurting (*3*). When the Federal Reserve aggressively hiked benchmark rates of interest final yr to combat hovering inflation, many executives began making ready for a recession. And when a adverse macroeconomic outlook takes maintain, promoting budgets are among the many first issues that firms reduce. Through the primary 9 months of 2022, Roku elevated its income by 19% yr over yr. For the just-ended fourth quarter, administration is anticipating to report a 7.5% drop. 

But it is not exhausting to see why Wood likes Roku a lot. It supplies a beneficial service to viewers who need to have the ability to simply entry all of their streaming companies in a single place, content material firms that need to attain a large viewers, and advertisers trying to market on this connected-TV surroundings. Roku’s energetic accounts grew by 16.5% yr over yr in Q3 2022 to 70 million, as shoppers streamed a whopping 23.9 billion hours of content material on its platform in that quarter alone. 

As of Dec. 31, Roku was the fourth-largest holding of the Ark Innovation ETF. 

Block 

Shares of fintech pioneer Block (SQ 3.25%), previously generally known as Square, fell by 61% in 2022, and now commerce at a price-to-sales a number of of two.6, close to the most affordable they’ve ever been by that metric. 

That poor inventory efficiency won’t be warranted provided that the digital funds innovator elevated gross revenue in each of its segments, Square and Cash App, by 29% and 51%, respectively, within the third quarter — its most lately reported interval — on a year-over-year foundation. That’s respectable development in one of these financial surroundings. 

Its Square section, which processed $50 billion in gross fee quantity in Q3, is a mission-critical service supplier for its clients. Small retailers rely on Square because the spine of their day-to-day operations. Without it, they run the danger of dropping gross sales and clients. 

Cash App, on the opposite hand, is a burgeoning cellular finance app that has amassed 49 million month-to-month energetic customers. It supplies a seamless consumer expertise, letting account holders deal with primary monetary companies like signing up for a debit card or shopping for shares, all with out coping with the hassles of a standard financial institution.  

With a complete addressable market of $120 billion in 2022 gross earnings — and increasing yearly — there may be nearly limitless potential for each Square and Cash App to journey the secular pattern of digital funds. 

Block is at the moment the fifth-largest holding of the Ark Innovation ETF. 

Coinbase 

Since its preliminary public providing in April 2021, Coinbase Global (COIN 15.75%) has seen its inventory plummet by 84%. The blame will be put on exterior elements, specifically the continued “crypto winter,” in addition to latest high-profile bankruptcies and scandals within the cryptocurrency trade which have depleted folks’s belief in crypto. 

Because Coinbase generates most of its income — 63% in Q3 — from transaction charges, the enterprise is closely influenced by the extent of investor curiosity in digital belongings. When crypto costs are usually on the rise, Coinbase has no downside attracting extra customers who commerce incessantly. When crypto costs crash, as they did in 2022, the corporate posts internet losses and has to put off workers. 

However, the hope is that Coinbase might help usher within the subsequent section for cryptocurrencies, by which they transfer away from being primarily belongings for monetary hypothesis and as a substitute turn into dominated by utility. That shift may very well be a number of years down the highway, but when decentralized purposes and non-fungible tokens take off and turn into frequent elements of individuals’s monetary lives, it is tough to think about a world by which Coinbase would not function a major gateway app for a lot of to entry the crypto financial system. And in that situation, the inventory’s upside is absolutely massive. 

As of Dec. 31, Coinbase was the eighth-biggest holding of the Ark Innovation ETF.