When a stock falls out of favor with the general investment community, famous investor Cathie Wood often gives it a second look -- and if the company happens to be an innovator with great long-term potential, she'll jump right in. This strategy has worked for the chief executive officer of Ark Invest, helping her to scoop up top quality players for bargain prices.
Last year, Wood's benchmark Ark Innovation fund climbed 67%, beating the S&P 500. But that may be just the beginning. Wood counts on holding onto her top picks for the long haul to maximize gains. And this past week, she went on another shopping spree, picking up three bargain stocks that could roar higher.
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1. Tesla
Cathie Wood has been bullish on Tesla (TSLA -1.11%) for quite some time, and the electric vehicle (EV) giant represents the second-biggest position in Ark Innovation. Wood occasionally sells some shares of Tesla, but following declines, she often scoops them back up again.
This is because Wood and her team believe the stock could soar to $2,000 by 2027, representing a gain of more than 1,100% from today's level. Tesla continues to work on autonomous driving technology and aims to launch a system of robotaxis. Chief Executive Officer Elon Musk even has spoken of how Tesla owners could put their cars to work as taxis, resulting in income for them and for the EV giant.
Of course, success here isn't guaranteed, meaning such a jump in share price may not happen. But even if it doesn't, Tesla's brand strength in the EV market, including ongoing innovation -- a recent example is the launch of the Cybertruck -- and growth in other areas such as energy generation and storage still could lift the stock significantly from today's levels.
And Tesla's more than $29 billion in cash means it has what it takes to invest in growth. So right now, this EV leader makes a great stock to buy on the dip.
2. Moderna
Moderna (MRNA 1.69%) gained worldwide fame, and generated billions in earnings, thanks to its coronavirus vaccine. But demand is on the decline as we head toward a post-pandemic situation, and investors are worried about this one-product company's future growth.
Wood, adding shares of Moderna to Ark Innovation last week, may be optimistic about Moderna's late-stage pipeline and what it's likely to deliver in the coming years. The company aims to launch as many as 15 new products in the coming five years, including one that could receive a regulatory nod this spring -- the company's investigational respiratory syncytial virus (RSV) vaccine.
Moderna's next wave of growth should come from a respiratory vaccine franchise as well as potential products in other treatment areas, such as oncology. This offers Moderna diversification, meaning the company today is lower risk than it was a couple of years ago, when these pipeline programs weren't as advanced.
The biotech company predicts revenue of as much as $15 billion from its respiratory franchise in 2027 and revenue from other new products could bring that level to $30 billion a few years later.
All of this means Wood scored a great deal when she snapped up shares of this player for only about 8 times forward earnings estimates.
3. Toast
Toast (TOST 3.42%) is a software-as-a service company offering a complete platform for restaurants. Through Toast, these businesses can manage inventory, handle payroll, process payments, and more.
The stock may look like it's on fire in recent time, with the price climbing 28% so far this year, but the shares still are down more than 60% from their market debut back in 2021. So Cathie Wood, adding shares to the Ark Fintech Innovation fund, still could be getting in on Toast for a bargain price.
And at the same time, recent share performance may be the signs of positive momentum, driven by customer gains and earnings strength. In the most recent quarter, Toast reported a 35% increase in its annualized recurrent run rate to more than $1.2 billion and forecast GAAP operating income profit by the first half of 2025.
Toast is gaining in users, announcing more than 6,500 new locations using its services in the quarter, to reach a total of 106,000 locations as of the end of last year.
Though all of this is positive, Toast still faces certain challenges. For instance, it operates in an industry that's struggled with higher costs in recent times, so some restaurant owners could favor less expensive alternatives. This means only investors with appetite for risk may want to follow Wood into this fintech player.
