Cathie Wood is probably the world’s most popular portfolio manager right now. That’s because her ARK Invest funds have delivered enormous returns for investors over the last year or so.
Recently however, many Wood stocks have been caught up in the tech sell-off. Many of her holdings have experienced double-digit declines.
Here, I’m going to highlight two Wood-owned stocks that have fallen 35% from their highs. Should I take advantage of the share price weakness and buy them for my own portfolio?
This Cathie Wood stock is down 40%+
One Wood stock that’s experienced a huge pullback is Zoom Video Communications (NASDAQ: ZOOM). Last year, it was trading near $570 at one point. However today, it’s trading near $320. That represents a decline of over 40%. It’s still up about 130% over a year though.
There’s a number of things I like about the business. For starters, it has a great product. It’s generally accepted that Zoom is the best video conferencing app on the market at present.
Secondly, it has a strong brand. Like Uber and Airbnb its brand has become a verb. For example, people say ‘let’s set up a Zoom call.’ Third, recent growth has been amazing. For 2020, revenue was up 326% to $2.7bn.
I do have some reservations about this Wood stock, however. One is the valuation. Currently, Zoom sports a market-cap of $95bn. That’s bigger than the vast majority of FTSE 100 companies, including the likes of BP and Vodafone. Currently, the stock’s forward-looking price-to-sales ratio is about 24. That’s high, which adds risk.
Another issue is the competition it faces from the likes of Microsoft and Google. Third, it’s hard to know how much we will all use Zoom when the world returns to normal. I expect Zoom to remain popular but, right now, it’s hard to make forecasts about future use.
Given these issues, I’m going to keep Zoom on my watchlist for now.
Wood’s third-largest holding
Another Cathie Wood that’s taken a huge hit in the recent tech sell-off is Teladoc Health (NASDAQ: TDOC), which provides virtual healthcare solutions. This stock – which is currently the third-largest holding in the ARK Innovation ETF – surged up to around $295 last year during the pandemic. However, since then, it’s fallen back to $180 – a decline of nearly 40%. Over a year, it’s up about 20%.
This is a stock I’m quite bullish on. One reason is that the virtual healthcare industry is forecast to grow substantially over the next decade. Between now and 2027, the global virtual healthcare market is expected to grow at around 25% per year.
Another is that the company is growing rapidly. Last year, revenue was up 98% to $1.1bn. This year, the company expects to generate revenue of $1.95bn-$2bn, which would represent top-line growth of 77-82%.
There are risks to the investment case, of course. In the short term, we may see a shift back to in-person doctor visits. This could impact near-term performance. The stock’s price-to-sales ratio of 14 probably doesn’t leave much room for error.
Additionally, the company is facing competition from the likes of Amazon and CVS Health. Amazon, for example, recently launched a telemedicine app.
Overall however, I like the long-term story here. I’d buy this Cathie Wood stock today.
Edward Sheldon owns shares in Teladoc Health, Amazon, Alphabet, and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Airbnb, Inc., Alphabet (C shares), Amazon, Microsoft, Teladoc Health, and Zoom Video Communications. The Motley Fool UK has recommended Uber Technologies and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.