5 Reasons ‘Cathie Wood Stocks’ Could Double in 2022-CryptocurrencyMohoagd


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There are a number of major turnaround catalysts on the horizon.

Many of you are aware with Cathie Wood, the well-known stock picker and creator of ARK Invest, which specializes in investing in innovative technology businesses with huge upside potential. Tesla (NASDAQ:TSLA), Coinbase (NASDAQ:COIN), Teladoc (NYSE:TDOC), Square (NYSE:SQ), and Roku (NASDAQ:ROKU) are just a few of the "Cathie Wood stocks" she invests in through her funds .

You may also be aware of how certain Cathie Wood stocks have gone from being Wall Street's biggest winners to being its biggest losers in recent years.

Consumers adopting disruptive new technologies and the Fed creating a wall of liquidity to incentivise risk-taking behavior in markets propelled her stocks to new heights during the pandemic. The ARK Innovation ETF (NYSEARCA:ARKK), Cathie's hallmark fund, soared 157 percent higher in 2020.

It was a show that left everyone speechless.

However, stocks do not continue to rise indefinitely. Cathie Wood equities also ceased rising in 2021, as consumers reduced their use of new technology platforms the previous year and values were pressured by rising inflation. The ARK Innovation exchange-traded fund (ETF), which had risen 157 percent in 2020, had lost 24 percent by the end of the year.

2022 Rebound

Our thinking here breaks down into five components:

  1. In 2022, the economy will slow. Consumer expenditure will remain flat in 2022, owing to a reduction in consumer confidence, a substantial drop in household savings, rising interest rates driving up borrowing costs, and the termination of stimulus payments. Consumer spending accounts for 70% of the US GDP. A downturn in consumer spending will inevitably lead to a slowdown in the economy, making strong corporate earnings growth very uncommon in the market. Investors will re-allocate their funds to firms that can continue to grow at a high rate, such as Cathie Wood stocks. The price of growth stocks will climb. Stocks with a high value will struggle.
  1. Inflation is going to meaningfully decelerate this year. Inflation was the bane of Cathie Wood stocks in 2021. But inflation rates will dramatically cool in 2022 as consumer spending slows, supply chain bottlenecks improve and the year-over-year comps get much harder. Throughout the year, inflation rates will fall from 7% to 5% to 3% and will likely end 2022 around 2%. Accelerating inflation killed Cathie Wood stocks in 2021. Decelerating inflation will boost Cathie Wood stocks in 2022.
  1. By the summer, the Fed will be obliged to make a dovish turn. This is a data-driven Fed that has a track record of being hawkish only when absolutely necessary. By the summer, an aggressive policy position will be unnecessary. Inflation will be rapidly decelerating. The pace of economic growth will slow. And the labor market will very certainly continue to be hampered by labor shortages. The Fed will revert to a dovish policy position in light of this data, which will be a positive outcome for growth stocks.
  1. Throughout the year, consumer use of digital platforms will pick up again. In 2021, consumers did not stop utilizing tech platforms in large numbers because they were no longer beneficial. They were simply bored of relying solely on such platforms for the entire year of 2020. But it's been nearly a year since the economy reopened, and all of those unsettled consumer expectations have been met. In 2022, we fully expect consumer behavior to return to normal. In today's world, "normal" entails rapid acceptance of tech platforms. As year-over-year comparisons become simpler, such increased adoption will enable IT businesses re-accelerate their growth paths in 2022.
  1. In comparison to long-term estimates, hypergrowth tech equities are extremely inexpensive. And many Cathie Wood stocks have a reputation for being exorbitantly priced. However, if you look at predictions for 2022, they're merely costly. When you look at projections after 2025, the picture changes dramatically. Square (NYSE:SPOT) is trading at 1.6X its 2025 revenue expectations, while Spotify (NYSE:SPOT) is trading at 2X. Roku is currently trading at 3.4X its 2025 sales forecast. DocuSign (NYSE:DOCU) and Zoom (NYSE:ZM) are both trading at roughly 6X. McDonald's (NYSE:MCD) is currently trading at 6.6 times its 2025 sales predictions, while Coca-Cola (NYSE:KO) is currently selling at 5.4 times its 2025 sales estimates. In other words, hypergrowth tech equities have corrected to the point where, based on 2025 predictions, many have valuations comparable to blue-chip stocks.


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