Investors shouldn't only buy stocks after major pullbacks but, given the option, those are certainly smarter times to step in. The lower your entry price for a position, the bigger your profit can be when you get out.
With that in mind, here's a closer look at three stocks well-represented within at least one of Cathie Wood's ARK Invest exchange-traded funds that are trading at bargain levels at the moment. Just bear in mind that "bargain" in this case doesn't necessarily mean these stocks are cheap relative to their earnings. It just means their current prices are markedly lower than where they were trading not too long ago.
1. UiPath
UiPath (PATH 1.28%) is anything but a household name. There's a good chance, however, that you or someone in your household benefits from the product this company provides.
UiPath is in the digital automation business. Organizations with complex computerized systems can use its tools to program them to perform many functions automatically, and that programming can be done even by people with little to no coding experience. Industries ranging from healthcare to finance to manufacturing benefit by using UiPath's platform to handle the tasks that would otherwise take humans much more time and effort to accomplish manually. In fact, in 2021, information technology market research and consulting outfit Gartner named UiPath its top player in the automation market.
Given all that, it should come as no surprise that UiPath's revenue is projected to grow by 22% this year and 28% in 2023. Enterprises are falling in love with the relatively new tools that dramatically improve efficiency.
And UiPath has only scratched the surface of the automation market. Straits Research suggests the process automation market will grow at an average annual pace of 33% between now and 2030, becoming a $28 billion market at the end of that stretch. This growth outlook is a key reason Wood and ARK Invest's fund managers are holding UiPath in both the ARK Innovation ETF (ARKK +1.53%) and the ARK Industrial Innovation ETF (ARKQ +3.36%). It offers a truly innovative product with a potential that many organizations are only beginning to fully appreciate.
NYSE: PATH
Key Data Points
That being said, this stock clearly hasn't performed well of late, for a handful of reasons. One of these reasons is last quarter's swell of compensation expenses, which have been high, although not inordinately high for a young company like UiPath. It only went public in April of last year and is still rewarding the employees who helped launch the company. The organization was also forced to book write-downs due to the fallout from Russia's invasion of Ukraine. Its first-quarter losses are likely to be even bigger for the second quarter, setting up a full-year loss. That's why the stock has lost roughly two-thirds of its value in just a little over a year.
Think bigger picture though. Between its current revenue growth pace, the projected swing back to a profit of $0.10 per share next year en route to an expected profit of $0.63 per share in 2026 means this high-growth name is only trading at around 30 times its future earnings.
2. Twilio
Add Twilio (TWLO +2.17%) to your list of beaten-down bargains that Wood is sticking with, if not buying more of. Three different ARK Invest funds have its shares in their portfolios -- positions with an aggregate value of nearly $500 million. She and her team haven't flinched once during the stock's 80% sell-off over the course of the past 12 months either.
NYSE: TWLO
Key Data Points
Simply put, Twilio offers businesses a complete, cost-effective way to automate their communications with customers. Text messaging, email, voice recognition, and online chat tools are just parts of its repertoire, and clients such as Lyft, Airbnb, and eBay are just a few of the organizations that have tapped it to help handle a huge load of interactions that would otherwise demand heavily staffed support and service call centers.
As is the case with UiPath, most consumer-facing companies are still learning the ropes when it comes to allowing digital tools to deal directly with customers. They're learning fast, though. This year, Twilio's revenue is expected to swell by 36%, followed by 29% growth next year. That is forecast to push it out of the red and into the black with a profit of $0.23 per share.
Data source: Thomson Reuters. Chart by author. Revenue and EBITDA figures are in millions of dollars.
Twilio's shares are still priced richly at just under 400 times that earnings figure, explaining much of the sell-off it has endured since this time last year.
Look further down the road, though. This year should be a turning point for the company's bottom line, and its double-digit percentage revenue growth has the top line near the point where it can cover all of its relatively fixed costs in addition to its variable expenses. The stock's weakness suggests the market is fixated on the recent past, which has more to do with pandemic-related challenges than waning demand. Wood and her team seemingly understand this dynamic.
3. Tesla
While UiPath may be unknown to most investors and Twilio is still a bit off the beaten path, Tesla (TSLA +3.93%) is at the extreme other end of that spectrum. It became one of the world's best-known companies by taking electric vehicles mainstream. Indeed, numbers from Experian suggest that Tesla still accounts for roughly two-thirds of the U.S. electric vehicle market despite the entry of numerous new competitors. And it's not doing too shabbily overseas either.
This reach wasn't impressive enough to stave off a 40% sell-off from April's high. But that pullback was actually rather modest given Tesla's volatile history, which is a subtle bullish hint in and of itself. The bulls even appear to be testing the waters of higher highs again, teasing a rebound that the broader market isn't yet.
NASDAQ: TSLA
Key Data Points
Then again, who can blame those bulls? The transition to an auto market dominated by electric vehicles is a trend that's bigger than the economy or stock market. The U.S. Energy Information Administration estimates that more than 670 million battery-powered cars will be traveling the world's roads by 2050, up from a little over 9 million as of 2020.
And Tesla is driving the bulk of the growth we've seen so far. It delivered roughly a quarter of a million electric vehicles during 2022's second quarter, easily topping its prior-year figure of around 200,000 despite a lingering semiconductor shortage. This resilience is a top reason Wood's ARK Innovation ETF has held onto its 1 million share stake in Tesla despite all the recent turbulence, and several other ARK funds also own stakes in the EV manufacturer.
