Although the once white-hot returns of investing guru Cathie Wood's Ark Investment exchange-traded funds have cooled off considerably in 2021 as the market rotated into more consumer-oriented stocks, she remains a fairly astute and sharp fund manager.
Her eight ARK Invest funds hold stakes in dozens of companies totaling more than $40 billion, and Wood isn't afraid to bet big on specific stocks either. In just her ARK Innovation exchange traded fund (ETF), Wood holds shares in five stocks that are worth over $1 billion each.
That's why it's still worth investors' time to watch which stocks she's adding to her portfolios, and the three stocks she has bet biggest on are companies you just might want to follow her lead on right now because they're primed to deliver superior returns.
Square (Wood's portfolio value: $2.5 billion)
Fintech stock leader Square (SQ 0.23%) made its mark on the world by giving small businesses the tools to compete on more of an equal footing with their mid- and large-cap brethren. Its point-of-sale solutions, analytics, loans, and software allowed them to process payments just as efficiently as bigger businesses.
Yet now larger merchants are finding value in Square's ecosystem as well. At the end of the third quarter, seller gross payment volume (GPV), or the total dollar amount of all card payments processed by sellers using Square, totaled $41.7 billion, of which mid-market sellers accounted for 37%. That's up from 28% just two years ago.
Since merchant fees drive this operating segment, bigger businesses should yield juicier gross profits.
What really has everyone's interest, though, is Cash App, Square's fast-growing peer-to-peer digital payments system. As of the end of last year, monthly active users had more than quintupled from three years ago. It generated $2.4 billion of revenue in the third quarter, up 16% from last year, and delivered $512 million in gross profit, a 33% improvement.
Arguably more important was Square's launch of Cash App Pay, a mobile-friendly payment system that allows users to pay at sellers affiliated with Square by scanning a QR code online or in person. It brings the Cash App experience to payments, and further ties its sellers to its ecosystem.
And now it's acquiring Afterpay (AFTP.Y), a global "buy now, pay later" platform, which is the lure retailers are using to entice consumers to shop more. It should also ramp up Square's own growth.
Teladoc (Wood's portfolio value: $2.7 billion)
Teladoc (TDOC 6.02%) got a big boost last year because the virtual healthcare specialist enabled patients to consult with their doctors even during pandemic lockdowns, providing the necessary degree of social distancing they sought.
While that was essential during a time when the economy was shut down, Teladoc is baffling Wall Street by continuing to post significant growth even though the world has largely reopened. Analysts had expected business to decline dramatically as consumers were allowed to exercise greater freedom again, but that's not what's happening. Patients discovered they enjoyed the convenience of virtual-doctor visits. They are able to schedule convenient appointment times, avoid overbooked waiting rooms, and remain in the comfort of their own homes.
And everyone wins. Doctors gain earlier access to patients who are more willing to schedule virtual visits, particularly for those chronically ill patients who need more intensive care. That ought to improve their health outcomes, which in turn should translate into reduced out-of-pocket costs for health insurers.
Teladoc forecasts revenue this year will rise to $2.6 billion, beating analyst forecasts of $2 billion. It expects revenue will reach $4 billion by 2024, which translates into a 25% to 30% compounded annual growth rate, and Wall Street expects that will increase to $5 billion the following year. Losses should also rapidly diminish over time, with profits of $1.50 per share by the middle of the decade.
Teladoc looks as though it's just getting started in an industry transformation.
Tesla (Wood's portfolio value: $3.9 billion)
By far Wood's largest holding, her 5.8 million shares of Tesla (TSLA 6.24%) stock represent 7.7% of her total portfolio, and that's even after selling off a chunk of her holdings to buy more shares of Coinbase (COIN 5.32%) and Robinhood (HOOD 2.64%).
However, the rest of Wall Street thinks the electric car maker is overpriced. Analysts have a consensus price target of $764 per share on the stock, some 30% below the $1,100 per share level it currently trades at.
They might want to reconsider. Although Roth Capital analyst Craig Irwin said earlier this year (when Tesla was priced at just $700 per share) that "People are just assuming that Tesla has no competition when they put this kind of lofty valuation on the company" -- he pegs its value closer to $150 per share -- business is booming for the carmaker.
Last quarter Tesla delivered a record 241,000 vehicles, almost all of which were its newer Model 3 and Model Y crossovers. And to help meet growing demand in Europe, where research firm Jato Dynamics reported the Model 3 was the top-selling vehicle on the continent last month, Bloomberg reports Tesla will start production in its recently completed factory beginning in December. As many as 30,000 vehicles are forecast to roll off the assembly line by the middle of 2022.
Tesla's stock is not cheap, and as the Roth analyst notes the EV maker does have competition, but this company looks like it is supercharging its growth potential for years to come.