The legendary investor and Ark Invest founder Cathie Wood has endured a rocky start to 2024. Her flagship ARK Innovation ETF, which skyrocketed in 2020 and 2021, has retreated into negative territory this year despite a 5% bounce on Wednesday.
Yet true to her contrarian reputation, Wood continues doubling down on some of her favorite high-growth disruptors that more than doubled last year: cybersecurity standout CrowdStrike, social media giant Meta Platforms, and air taxi pioneer Archer Aviation. Let’s examine why she may be betting these stocks still have room to run.
CrowdStrike: Accelerating Growth and Profitability Make This a Top Cybersecurity Pick
While Cathie Wood’s funds have hit some air pockets recently, don’t point the finger at CrowdStrike. Shares of the cloud-based cybersecurity platform have surged 31% year-to-date, adding to a more than 100% return in 2023.
Analysts are rushing to upgrade stock price targets in response, with KeyBanc’s Eric Heath hiking his forecast by 53% in less than a month to $375. Heath cites strong channel checks for CrowdStrike’s core Falcon endpoint security and identity protection offerings.
The rampant growth makes sense. With cyber attacks now ranked as a top threat to companies and governments alike, demand for CrowdStrike’s intelligent security software is surging. Revenue grew 34% last quarter to $580 million. And thanks to the operational leverage of its cloud-based subscription model, adjusted earnings rocketed 85% – trouncing Wall Street projections again.
On a GAAP basis as well, CrowdStrike flipped to profitability as more customers flocked to its platform. For the upcoming quarterly report on March 5th, guidance calls for 32% revenue growth. And given CrowdStrike’s long history of beating estimates, many analysts believe that outlook remains conservative.
Between the market opportunity still in its early innings, triple-digit growth, solid profits, and track record of execution, it’s no surprise Cathie Wood views CrowdStrike as a long-term winner. The shift to cloud and AI-powered security tools is accelerating. And CrowdStrike sits at the forefront enabling that transformation.
Meta Growth Rebound Shows Its Platforms Still Have Staying Power Meta Platforms has also rebounded with a vengeance since 2023 began. Shares of the social media leader have nearly quadrupled in that span after years of negative sentiment. Yet even after last year’s powerful rally, Meta stock still looks reasonably priced for its growth prospects.
Just a year ago, Meta – the parent company behind Facebook, Instagram and WhatsApp – seemed to lose its mojo. Revenue declined sharply in 2022 as ad spending slowed and Apple’s privacy changes created headwinds. But the growth engine reignited in mid-2022 and accelerated each subsequent quarter last year.
Beyond the rebound in revenue, Wall Street is growing more optimistic about profit potential as well. In the past three months alone, analysts have increased their 2023 EPS forecast by 24% to $19.92. And their 2024 projection now sits 22% higher at $22.96 per share.
So even after the furious rally since growth rebounded, Meta’s forward P/E multiple sits at a reasonable 21x. Put another way, investors could have snapped up the stock for just over 5 times Meta’s expected 2024 earnings at the start of last year – quite a bargain in hindsight.
Between resurgent user growth, untapped revenue potential from short-form video Reels and the metaverse, plus massive share buybacks, Meta appears poised to continue leaving its growth struggles behind. Though regulatory threats still loom, for Cathie Wood’s long-term focus, Meta likely remains a cornerstone holding.
Speculative Play: Archer Aviation Aims to Pioneer Electric Air Taxis
Rounding out Cathie Wood’s latest buys is Archer Aviation – a startup aiming to revolutionize urban transportation through electric air taxis. Wood has accumulated over 9% of Archer’s shares outstanding, making it a top holding likely to shape her funds’ future performance.
The promise is Jetsons-like flying cars whisking passengers across cities in minutes using electric vertical takeoff and landing (eVTOL) aircraft. But the path to commercialization remains filled with challenges, from technology and regulation to infrastructure and public acceptance.
Still, Archer Aviation continues notching key milestones as it develops its initial fleet. The company just completed flight testing for its debut Midnight model. Archer has also forged partnerships with automakers Stellantis and Fiat Chrysler along with United Airlines to lay the groundwork for passenger operations.
Cathie Wood is essentially making a long-term bet on the future of transportation here – albeit an uncertain one. Interest continues rising, though, as Archer’s doubled valuation since early 2023 indicates. Given how profoundly innovative new mobility modes could reshape cities in the coming decades, Archer Aviation offers a ticket to ride those changes in its early stages.
The Bottom Line: Wood Sticks to Disruptive Growth Stocks Despite Short-Term Pain
While Cathie Wood’s near-term results may be tested in 2024 if markets extend their pullback, she remains fully committed to her long-term strategy targeting explosively growing innovators. Cybersecurity leader CrowdStrike, social media phenom Meta Platforms, and air taxi upstart Archer Aviation all fit that mold.
With strong competitive moats in large addressable markets, Triple-digit revenue expansion in recent quarters, early profitability or a path toward it, and vast room for future growth, it’s easy to see why these picks have contributed to Wood’s past success. The recent doubled-digit percentage selloff likely made them even more attractive for new buying.
Of course, chasing high-growth stocks after a huge run is always risky. But for truly disruptive companies like these three developing leading positions in their respective categories, the biggest gains often materialize years down the road.
Wood has endured multi-year booms and busts before, sticking steadfastly to her strategy. For those with similarly long-term time horizons and the stomach to endure volatility, these latest picks may warrant a close look. But be sure to size positions appropriately and diversify to manage risk, as exciting growth stories can sometimes end badly.
