Home run hitters tend to also have a lot of strikeouts. Swinging for the fences means you’re going to miss a lot of balls, too. But when they connect, batters can drive some monster moonshots. Investing in these undervalued Cathie Wood stocks is a homerun. She wants to be Wall Street’s Babe Ruth standing at the plate, pointing to center field with her bat and hitting the next pitch over the wall.
Every year, Wood’s Ark Invest publishes her Big Ideas report. It is a collection of disruptive investment ideas she believes will shape the future. From artificial intelligence (AI) and Bitcoin (BTC-USD) to digital wallets and reusable rockets, Wood lays out her vision for where the market will move.
Her Ark family of funds then tends to act on those ideas, investing big bucks into the stocks that could realize those grand visions. Most famously, she stands by her call that Tesla (NASDAQ:TSLA) can still be a $3,000 per share stock.
Below are three undervalued Cathie Wood stocks her Ark funds own. They are underperforming the market in 2024 but possess potential to bounce back from their discounted valuations.
Teladoc Health (TDOC)
Pandemic darling Teladoc Health (NYSE:TDOC) is a stock that should be doing better than it is. The remote medical care specialist was perfectly positioned to capitalize on the government lockdowns during an international health crisis. Virtual doctor visits soared as people scheduled consultations without having to be among other sick and infected people. As the virtual visit could be scheduled when most convenient, it should have marked an inflection point for Teladoc when the pandemic passed.
But it didn’t. People returned to their normal routine of sitting in waiting rooms waiting for in-person visits afterward. Total visits in the first quarter fell 6% from 4.9 million a year ago to 4.6 million. For all of 2023, there were 18.4 million, 1% lower than 2022’s 18.5 million visits. It suggests they could go lower this year.
What ultimately crushed Teladoc Health was its $18.5 billion acquisition of Livongo and its diabetes monitoring and remote monitoring services. As the tele-visit business fell off, Livongo became an albatross weighing it down. In the process, Teladoc destroyed massive amounts of wealth. Shares are down 93% from their 2021 high. Yet the stock trades at just a fraction of its sales and book value and goes for just 5 times the free cash flow (FCF) it produces.
Wood owns 6.3% of the company at prices ranging from $148 to $172 per share. It currently trades at $11. That she hasn’t closed out her position suggests she believes there is a turnaround coming.
Zoom Video Communications (ZM)
Videoconferencing specialist Zoom Video Communications (NYSE:ZM) is another undervalued Cathie Wood stock. The one-time pandemic star fell on hard times after the crisis passed when going into the office became a thing again.
Much like Teladoc, Zoom’s heady growth days seem over, unless the outbreak of bird flu in humans turns into another pandemic. However, there still seems to be additional growth that can be unlocked from its videoconferencing hardware. It has an intuitive interface and operates on a freemium model. Full-year 2023 results beat Wall Street estimates on the top and bottom lines, and first quarter results kept the momentum moving in the right direction. Revenue was up 3% with GAAP profits soaring 18%.
Wood is underwater on her holdings, though. She has several positions between $278 and $292 per share, well above its current $61 a stub price point. But the stock looks cheap at 11 times next year’s earnings estimates and FCF.
PayPal (PYPL)
Another one of the undervalued Cathie Wood stocks is payments giant PayPal (NASDAQ:PYPL). She is also underwater on the stock as it goes for $63 a share, but she has positions valued between $181 and $216 per share. Wood owns $9.5 million worth of stock, or about one-tenth her investment in Tesla. If the payments company went under, it wouldn’t dent Wood’s Ark funds much.
Yet PayPal is in no danger of that happening. In fact, it likely has the best chance of all three stocks of reclaiming its former glory. The stock is down due to more competition from the likes of Block (NYSE:SQ) and Shopify (NYSE:SHOP). Yet PayPal is still the industry leader, commanding a 45% share of online payment processing technologies worldwide. That is more than the next 12 largest rivals combined.
Moreover, PayPal blows away the digital wallet competition. Morning Consult says 185 million people, some 71% of U.S. adults, use PayPal.
Wall Street forecasts PayPal will grow earnings 16% annually for the next five years while trading at 11 times next year’s estimates. Analysts have a $74 per share one-year price target on the stock. Its low valuation, though, makes its stock a buy even if it doesn’t climb back to the price at which Wood bought in.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
