In this article, we discuss the 9 cheap stocks to buy according to Cathie Wood.
Cathie Wood’s hedge fund ARK Investment Management has been battered this year as investors exit growth stocks and move towards defensive plays. The hedge fund which made headlines with its explosive gains in 2021 saw its Innovation ETF crash by a whopping 60% this year. ARK’s assets under management, which had a total value of about $60 billion in February 2021, fell to just $16 billion as of the end of April this year.
However, Cathie Wood’s portfolio is still full of growth stocks that are not profitable and promise profits far into the future based on their disruptive products and services. Time and again she has claimed that she has a five-year horizon on these growth equities and investors should wait for these investments to come to fruition. At a conference in April this year, Wood claimed that ARK would rebound and gain as much as 50%.
In October, Cathie Wood said that the US auto debt market could face “serious losses,” citing data from September which showed a decrease in vehicle prices in the country. The growth investor thinks that gasoline-powered cars are losing traction as customers are starting to prefer electric vehicles.
In June, data from Bloomberg showed that ARK held $15.3 billion in assets across nine ETFs, a whopping 48% decrease from the start of 2022. Bloomberg said that it was the biggest collapse in assets among the 25 largest US issuers. However, surprisingly, most of this crash was due to the weak performance of ARK’s ETFs instead of investor exodus. The fund’s ETFs saw net inflows of $167 million in the period. This shows that growth investors who have a large risk appetite still trust Cathie Wood and are willing to wait until the market turns the corner. Only time would tell if Cathie Wood was right in betting huge money on small, loss-making companies that are working on “disruptive” technologies according to her.
Cathie Wood of ARK Investment Management
Our Methodology
For this article we used the third quarter portfolio of Cathie Wood’s hedge fund ARK Investment Management. We started from the top of the portfolio and picked 10 cheap stocks. Most of these stocks are priced under $35 as of October 31.
Cheap Stocks to Buy According to Cathie Wood
9. TuSimple Holdings Inc. (NASDAQ:TSP)
Tusimple Holdings is an autonomous trucking company that is trading around $5 as of October 24. This cheap stock is one of the favorites of Cathie Wood. As of the end of the third quarter of this year, ARK owns 16 million shares of the company which have a total worth of $122.35 million. While Tusimple has been battered in 2022 like other growth stocks in Cathie Wood’s portfolio, it can grow in the future when the market turns the corner because it’s operating in a high-growth domain.
In September, Truist Securities started covering TuSimple Holdings (NASDAQ:TSP) with a Buy rating and said the company is a leader in the emerging autonomous trucking because of its technology and its commercialization strategy to penetrate the $800 billion U.S. truck freight market.
8. UiPath Inc. (NYSE:PATH)
RPA software company UiPath Inc. (NYSE:PATH) is one of the cheapest growth stocks in Cathie Wood’s portfolio. ARK increased its hold in the company by 23% during the third quarter, ending the period with 46 million shares, worth $581.1 million. UiPath is down 70% this year. Recently, Barclays analyst Raimo Lenschow downgraded UiPath Inc. (NYSE:PATH), saying that the stock has become a “show-me” story as the company works to gain confidence and traction in the difficult environment.
In September, UiPath decreased its 2023 fiscal guidance, after which Mizuho downgraded the stock to Neutral from Buy and decreased the stock’s price target to $14 from $40.
Despite all of this, Cathie Wood believes the stock could rally. She initiated a new stake in UiPath Inc. (NYSE:PATH) in the second quarter of 2021 by buying 11.8 million shares.
Billionaire Jim Simons has a $99 million stake in UiPath as of the end of the second quarter of this year. Philippe Laffont’s Coatue Management is also an important shareholder in the company, with a $77 million stake as of the end of the June quarter.
7. Exact Sciences Corporation (NASDAQ:EXAS)
Exact Sciences Corporation (NASDAQ:EXAS) is a Wisconsin-based molecular genetics company that is working on technologies related to early detection of cancers. Cathie Wood bought a stake in the company during the third quarter of 2020 with 529,000 shares. As of the end of the third quarter, ARK’s stake in the company stood at 17.56 million shares, which had a value of $570.6 million.
In August, Credit Suisse analyst Dan Leonard started covering Exact Sciences Corporation (NASDAQ:EXAS) with an Outperform rating and a $55 price target. The analyst noted that Exact Sciences’ positions in the non-invasive colorectal cancer screening market is “durable.” The analyst also said that the upcoming catalysts from the pipeline can offset the risks coming from multi-cancer testing and minimal residual disease monitoring.
However, in October, Craig-Hallum analyst Alex Nowak downgraded Exact Sciences Corporation (NASDAQ:EXAS) to Hold from Buy with a price target of $35, down from $60.
As of the end of the second quarter, 28 hedge funds tracked by Insider Monkey had stakes in Exact Sciences Corporation (NASDAQ:EXAS). The total value of these stakes was about $1 billion. Ken Griffin’s Citadel Investment Group is also one of the largest stakeholders of the company. The fund owns a massive $99.6 million stake in the company.
Here is what RiverPark Large Growth Fund has to say about Exact Sciences Corporation in its Q4 2021 investor letter:
“Exact Sciences: Exact Sciences Corporation (NASDAQ:EXAS) shares declined on a disappointing recovery in Cologuard screening due to COVID. Despite continued revenue growth from Precision Oncology and COVID testing, and Cologuard screening revenue growth of 30%, COVID restrictions limited access to physicians’ offices for the company’s and its Pfizer Joint Venture sales force as well as causing a severe drop off of in-person wellness visits.
In the last year, Exact Sciences Corporation (NASDAQ:EXAS) has also pivoted the company significantly from its single cancer screening tests (Cologuard for colon cancer and Oncotype for breast cancer) to multi-cancer screening through its Thrive acquisition, and to minimal residual disease and recurrence monitoring through its Ashion and Tardis acquisitions. Through this pivot, Exact has tripled its market opportunity from $20 billion to $60 billion.”
6. Fate Therapeutics, Inc. (NASDAQ:FATE)
Fate Therapeutics is one of the best cheap stocks to buy according to Cathie Wood. The stock is hovering around $19 as of October 24. Cathie Wood’s ARK owns 11.7 million shares of the company as of the end of the September quarter. The total worth of these shares was $261.21 million. In August, Fate Therapeutics (NASDAQ:FATE) gained after Wells Fargo resumed its coverage with an Overweight rating. Wells Fargo analyst James Shin cited two growth catalysts coming in the fourth quarter of 2022 for the rating.
On October 10, Canaccord analyst Bill Maughan started covering Fate Therapeutics (NASDAQ:FATE) with a Buy rating and $42 price target. The analyst said in a note to investors that Fate Therapeutics (NASDAQ:FATE) is one of the most advanced natural killer cell companies.
Hedge fund sentiment, however, is declining for Fate Therapeutics (NASDAQ:FATE). A total of 23 hedge funds tracked by Insider Monkey had stakes in the company at the end of the June quarter, down from 31 funds in the first quarter.
Billionaire Izzy Englander’s Millennium Management owns an $18 million stake in the company as of the end of the second quarter. However, the biggest stakeholder of the firm at the end of June was Redmile Group of Jeremy Green. The hedge fund reported owning a $321 million stake in the company.
5. PagerDuty, Inc. (NYSE:PD)
Cathie Wood has been holding stakes in the SaaS-based incident response platform company PagerDuty, Inc. (NYSE:PD) since the first quarter of 2020. As of the end of the third quarter of this year, ARK had 10.8 million shares of the company. The total worth of these shares was about $250 million. In September, PagerDuty (NYSE:PD) jumped after posting strong quarterly results and receiving bullish comments from the Wall Street. Investment firm Monness, Crespi, Hardt analyst Brian White said that the strong results were welcomed by investors. However, the analyst, who has a Neutral rating on the stock, said that the enthusiasm could be “fleeting.” The analyst said that while PagerDuty, Inc. (NYSE:PD) has a “large opportunity” in the real-time digital ops market, the current state of the economy and geopolitical landscape could result in headwinds down the road.
As of the end of the second quarter of this year, 22 hedge funds tracked by Insider Monkey had stakes in the company, compared to 26 funds a quarter earlier. Robert G. Moses’ RGM Capital was among the notable shareholders of the company, with a stake worth $94.6 million.
4. Twist Bioscience Corporation (NASDAQ:TWST)
ARK increased its holding in Twist Bioscience by 7% in the third quarter of this year, ending the period with 6.8 million shares of the company, worth $235.3 million. The San Francisco-based company makes DNA products. Cathie Wood first bought a stake in the company in the second quarter of 2019. Barclays analyst Luke Sergott in October lowered his price target on Twist Bioscience to $45 from $55 and kept an Overweight rating on the shares.
As of the end of the second quarter of 2022, 14 hedge funds tracked by Insider Monkey had stakes in the company, compared to 16 funds in the previous quarter.
3. Pacific Biosciences of California, Inc. (NASDAQ:PACB)
As of the end of the third quarter of this year, Cathie Wood had a $167 million stake in Pacific Biosciences of California. The growth investor first bought a stake in the gene sequencing company in 2018. She sold her entire position in the company in 2019 before starting to build a large stake in the firm in subsequence years.
As of the end of the second quarter, 18 hedge funds out of the 895 tracked by Insider Monkey reported owning stakes in the company, down from 22 funds a quarter earlier. Billionaire DE Shaw’s hedge fund had an over $10 million stake in the firm as of the end of June.
2. Veracyte, Inc. (NASDAQ:VCYT)
Genomic diagnostics company Veracyte first appeared in Cathie Wood’s portfolio in 2016. As of the end of the September quarter, Cathie Wood’s hedge fund had a $150.8 million stake in the company. In September, the company announced that its Decipher Prostate Genomic Classifier may help identify African American men with early, localized prostate cancer who are most likely to harbor more aggressive disease.
Billionaire Ken Fisher was also a significant shareholder of the company as of the end of the June quarter, as his hedge fund reported having a $29.3 million stake in the company.
Here is what Artisan Partners has to say about Veracyte, Inc. in its Q2 2021 investor letter:
“Among our bottom contributors (includes) Veracyte. Veracyte develops and markets molecular tests designed to minimize ambiguity in the treatment of patients with cancer. These tests can reduce unnecessary surgeries and help put cancer patients at ease when the decision is to “watch and wait.” Shares have been pressured amid a recent investment cycle (acquired Decipher and HalioDX) and a resurgence of the pandemic earlier this year weighing on testing volumes. In addition, the company’s founder and CEO recently announced she was moving to Executive Chair. Her replacement is the former CFO of Illumina, who is very knowledgeable in invitro diagnostics and played a critical role in Illumina’s international expansion efforts (which we expect him to pursue at Veracyte). We are maintaining our position as patients return to the clinic for testing and as management executes on its strong R&D pipeline, including the upcoming launch of a nasal swab lung cancer test. Longer-term, the company is well-positioned to expand internationally as it ports its growing menu of tests onto the recently acquired nCounter instrument.”
1. 10x Genomics, Inc. (NASDAQ:TXG)
Gene sequencing company 10X Genomics has lost 80% of its value year to date and presents an attractive buying opportunity for those who are looking for cheap stocks and have a large risk appetite. In August, Goldman Sachs downgraded the stock to Sell from Neutral, citing sales growth slowdown. The firm said in a note that as 10X Genomics becomes a multi-product company, its 2023/24 sales growth could lag the consensus and historical rates.
Despite this bearish sentiment, Cathie Wood is increasing her hold in the stock, as ARK increased its stake in the company by 28%. ARK has a stake worth $130 million in the company.
Here is what ClearBridge All Cap Growth Strategy has to say about 10x Genomics, Inc. (NASDAQ:TXG) in its Q4 2021 investor letter:
“We also established a position in 10x Genomics (TXG). TXG is the dominant player in single-cell analysis and enjoys a duopoly in spatial profiling, two emerging areas of scientific research. Though the company is not yet profitable, we are attracted to the business’s strong gross margin profile and a high degree of visibility as consumables account for 85% of revenue. We also continue to see opportunities for investment in other disruptive areas of health care with large addressable markets, like diabetes.
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Disclosure: None. 9 Cheap Stocks to Buy According to Cathie Wood is originally published on Insider Monkey.
