Cathie Wood hit the new trading week running. The Ark Invest co-founder, CEO, and chief stock picker added to seven of her existing positions on Monday. She didn't sell a single stock.
What is she buying right now? Three of the names that I find interesting are Block (SQ 2.32%), Markforged (MKFG -1.16%) and Archer Aircraft (ACHR 1.00%). What does Wood see in these three growth stocks that are trading well below their previous highs? Let's take a closer look.
Block
There hasn't been a lot of love for fintech stocks in general and Block in particular. The parent company of Square and Cash App finds its shares trading 85% below the all-time high it hit more than two years ago. Most analyst updates have been disappointing as Wall Street pros cut their price targets on the way down or justify the pessimism that's coating the sector. Block caught a break last week.
Bryan Bergin at TD Cowen initiated coverage of Block late last week with an outperform rating. He feels that the recent markdown on the shares has overshot Block's fundamentals. Bergin sees the Block ecosystem of properties as differentiated and disruptive, and he recommends being a buyer here at a time when many investors are still bent on selling.
Image source: Block.
The analyst's price target of $59 represents just 35% of upside from Monday's close. It's even below where Block stock was at the start of this year. However, a bullish initiation is welcome news.
Block is still growing, posting year-over-year revenue growth of 26% in each of its two latest quarters. It reports again on Nov. 2. The analyst consensus is calling for top-line gains to decelerate to 21% for next month's quarterly update, but that's still respectable growth in the current climate.
Markforged
Wood isn't afraid to buy small companies, and Markforged is one of the more obscure names among her dozens of holdings with its market cap of $266 million. Its Metal X product line is an end-to-end 3D printing solution that can generate functional metal parts by the next day, a critical feature for industrial companies that can't afford to be down for too long when a rare part needs to be replaced.
Growth has been decelerating lately. Revenue has gone from 27% growth in 2021 to 11% last year. Its pace of top-line gains is expected to slow yet again to a mere 5% this year. The good news is that Wall Street sees Markforged stepping on the gas next year, modeling 16% growth in 2024, accelerating to 33% in 2025.
Archer Aviation
One of Wood's biggest gainers this year is Archer Aviation. A leader in the still nascent market for electric vertical takeoff and landing (eVOTL) aircraft, Archer has seen its stock soar 176% in 2023. It's flying high despite being a pre-revenue company, as investors get excited about the potentially explosive growth for short-range air travel.
The most common applications for eVOTL are medical and luxury air taxi services, but this could be just scratching the surface. Last week the U.S. Air Force paid its first $1 million to Archer for contracts that could valued as much as $142 million in the process. The vertical flight market could have some significant military applications with Archer's eVOTL light and quiet aircraft.
It will take time for the financial performance to start playing out. Archer is still a couple of years away from generating meaningful revenue. Analysts see losses continuing through at least 2027. The stock is moving now because Archer has succeeded in clearing regulatory hurdles, securing financing, and landing potentially lucrative long-term partnerships now.
