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Forget Dogecoin: 3 Cathie Wood Investments That Could Deliver Superior Returns

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Dogecoin still stands as the year's best-performing asset, but investors should focus on what comes next.

Despite pulling back from recent heights, Dogecoin's (DOGE -9.80%) price per token has soared nearly 6,900% year to date. Not a single stock held by Cathie Wood's growth-focused ARK Invest firm has come close to those returns. 

Like Dogecoin, many of the stocks held in ARK's ETFs are risky investments that could deliver explosive gains. However, there are important distinctions to be made when categorizing risk, and even risk-tolerant investors may be better served by high-quality growth stocks than speculative cryptocurrencies. 

With that in mind, we asked three Motley Fool contributors to identify a growth-focused investment backed by the ARK team that looks primed to outperform Dogecoin. Read on to see why they think these alternatives are better buys. 

A piggy bank launching like a rocket.

Image source: Getty Images.

Sometimes it pays to embrace your comfort zone

Keith Noonan: I happily tip my hat to those who have scored big wins with Dogecoin. At the same time, I'm not particularly inclined to join Team Doge and think its current valuation sets the stage for a dizzying pullback. 

There's no arguing with the token's incredible gains this year. However, try as I might, I just can't bring myself to get on board with an asset that appears to swing wildly in relation to tweets and media appearances from Elon Musk. It's good practice to never invest more than you're prepared to lose -- and not to invest in things that you don't feel comfortable with.

In the age of meme stocks, social-media powered short squeezes, and growing crowds showing almost fanatical devotion to their favorite cryptocurrencies, it's impossible to rule out another big run for Dogecoin. However, I struggle to find any sound reasoning behind the token's gains so far and will happily stick with growth stocks for my high-risk, high-reward investing plays. 

Within that mold, Teladoc Health (TDOC -2.48%) stands out as a stock in the broader ARK portfolio that still has huge potential for long-term growth. The company provides video-conference consultations with doctors and other health professionals -- paving the way for less time spent traveling to offices and flipping through magazines in waiting rooms. Teladoc's service also allows patients with limited mobility and other conditions to meet with healthcare professionals from the comfort of their homes. 

Teladoc is providing real utility and looks to be in the early stages of capitalizing on a huge long-term growth opportunity. I just don't see that with Dogecoin. Will Teladoc stock ever soar 6,900% in less than a year's time? Probably not. However, I do think it will deliver big wins for investors, and I have very little concern that it will lose 90% (or more) of its current value inside of a year.

Risk-taking just for the sake of taking a risk? No thanks.

James Brumley: You know, most investors understand that the economy -- and therefore the market -- is cyclical. We can see it. We can even plan for it.

Much less apparent is that investor psychology is also cyclical. We start post-recession and post-bear market phases with hope, but also with an abundance of caution. As time and stocks march on, we grow bolder.

Where we are in the current psyche cycle is just past the point where investors are willing to take almost any risk for the right reward, and right at the beginning of the phase where investors are taking big risks just for the sake of taking risks... without really even weighing the rewards. I believe Dogecoin and other cryptos not only fit that description, but are largely the result of demand for high-risk prospects.

We've certainly seen it before. Ridiculous dot-com valuations of the late 90s and the packaging of subprime mortgage loans into sellable bundles in 2007 are a couple of major examples of such mania. Pot stocks, solar stocks, oil stocks, and gold stocks all offer up great examples of mini-bubbles that spurred big bets that weren't paired with important questions like, "Is there any realistic reason to believe this investment can produce and sustain gains?" Cryptocurrencies fall into this latter category of risk-loving manias. Everybody wants 'em, but other than because they're rising, nobody can really articulate why they're worth the risk.

And to be clear, not all high risk is bad risk. Cathie Wood's ARK funds own a ton of Square (SQ -0.76%) and Roku (ROKU -0.65%), both of which are risky in that there's no barrier to entry into their already-crowded market. But there's clear consumer demand for both companies' products, and there's tangible reason to believe both of these companies will maintain their market leads and generate real income that adds value. That's not even a discussion you can pretend to have with Dogecoin. Of those two names, I think Roku's the best pick on a risk-vs.-reward basis.

A better growth machine with fewer memes

Daniel Foelber: Cathie Wood's funds are known for offering explosive growth potential through paradigm-shifting technologies. To their credit, Wood and her team have been open about the risks of such a bold value proposition -- the biggest being volatility -- which is simply the price of admission for what ARK believes will be market-beating returns.

Whether you agree with Cathie Wood or not, her investment philosophy is at least understandable. And while I can wrap my head around the potential of Bitcoin (BTC -2.86%) and Ethereum, I can't find a logical explanation that supports the rise of Dogecoin.

ARK Invest is a big believer in Bitcoin, stating that "Bitcoin offers one of the most compelling risk-reward profiles among assets." In fact, it was the No. 1 most discussed topic in the company's Big Ideas 2021 presentation. 

ARK's optimism is centered around the belief that more and more firms are going to start carrying Bitcoin on their balance sheets instead of cash. Not only would this provide a hedge against inflation, but it could also be used as an alternative currency to the U.S. dollar. According to ARK's research, Bitcoin's price could increase by $40,000 if all of the companies in the S&P 500 were to transfer 1% of their cash into Bitcoin. 

Aside from the "store of value" argument, ARK believes that Bitcoin is gaining credibility from regulators, banks, fintech companies like Square and PayPal, and as an alternative asset class for institutional investors. In sum, ARK sees Bitcoin going more mainstream, and that should help the asset grow in value over time. 

Unlike Dogecoin, Bitcoin has intricate advantages that make it a truly remarkable commodity. As with most of Wood's ideas, Bitcoin is likely to sport some crazy volatility for the foreseeable future. But for investors who can stomach the turbulence, it could very well be a big idea worth exploring.

Daniel Foelber owns shares of Bitcoin and Ethereum and has the following options: long January 2022 $155 calls on Teladoc Health and short July 2021 $180 calls on Teladoc Health. James Brumley has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin, PayPal Holdings, Roku, Square, and Teladoc Health. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bitcoin Stock Quote
Bitcoin
BTC
$22,792.74 (-2.86%) $-672.03
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$99.86 (0.44%) $0.44
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$35.06 (-2.48%) $0.89
Block, Inc. Stock Quote
Block, Inc.
SQ
$79.72 (-0.76%) $0.61
Roku Stock Quote
Roku
ROKU
$77.91 (-0.65%) $0.51
Dogecoin Stock Quote
Dogecoin
DOGE
$0.07 (-9.80%) $0.01
Ethereum Stock Quote
Ethereum
ETH
$1,818.82 (-1.73%) $-32.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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