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Sunday, May 28, 2023

Cathie Wood Bets Big on These 2 "Strong Buy" Stocks

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One strategy for selecting top stocks is to follow a known market guru, a high-profile, highly successful investor. These are the pros who have built multi-billion dollar portfolios, and manage the high-performing hedge funds. And ARK Investing’s Cathie Wood stands tall in their ranks.

How successful? Well, last year, her $21.1 billion ARK Innovation fund led the way among the best-performing actively managed equity funds in the US.

In recent days, Wood has been making some waves by noting that US economic activity is slowing, and that, in the longer term, this will give a boost to growth stocks. Wood notes that inflation is growing, job growth in August disappointed, and that growth in 2022 is likely to come in slower than expected. She sees these factors supporting a shift away from the cyclical stocks that gained during the peak of the pandemic crisis.

“We think we are moving into the other side of the cycle… We do believe that the market will start rotating back toward growth and innovation,” Wood noted.

Looking to Wood for investing inspiration, we used TipRanks’ database to find out if two growth stocks she recently added to the fund represent compelling plays. According to the platform, the analyst community believes they do, with both picks earning “Strong Buy” consensus ratings.

Verve Therapeutics (VERV)

We’ll start with a biotech stock, Verve Therapeutics. This company has a focus on heart disease, a leading cause of preventable death. Verve aims to develop and market new therapies for heart disease that are both transformative and ‘once-and-done.’ Verve uses a novel approach to cardiovascular disease treatment, based on single-course in vivo liver-directed gene editing treatments designed to attack the root causes of heart disease.

The company’s pipeline currently features two drug candidates, both in pre-clinical development phases. The leading candidate of the two, VERVE-101, is under development for patients with HeFH, a genetic mutation that leads to high low-density lipid (LDL-C) levels in the blood, and eventual arterial blockage. These are leading causes of heart attack and stroke, and a ‘once-and-done’ treatment would mark an advance for patients currently on long-term medication courses.

To raise capital for further research, Verve held an IPO in June of this year. The event saw the stock hit the NASDAQ on June 17, with 14 million shares made available. Initial pricing was set at $19, higher than the $16 to $18 range which had been expected. In the event, Verve raised over $306 million gross proceeds. The stock closed over $31 on its first day of trading, and has doubled since then.

Not wanting to miss out on a compelling opportunity, Wood’s fund pulled the trigger on 548,389 shares, giving it a new position in VERV. At current prices these shares are now worth over $34 million.

Among the bulls is Guggenheim analyst Etzer Darout, who sees the stock as a quality investment for the long term.

“Although VERV is still in the early stages of development, we believe the company’s single-course treatment has an opportunity to transform the chronic treatment and management of atherosclerosis; and our risk-adjusted NPV assumptions for familial hypercholesterolemia (FH) alone, a subset of atherosclerotic individuals at higher risk of developing cardiovascular disease, justify current levels,” the 5-star analyst noted.

Darout added, “We expect pre-clinical updates from VERVE-101, including long-term durability data in non-human primates (NHPs) over the next 12-18 months as well as positive updates from other gene editing programs to provide validation of VERV’s platform and a path to potential near- & longer-term upside.”

In line with his optimistic approach, Darout rates VERV a Buy along with a $74 price target. Should his thesis play out, a potential upside of ~33% could be in the cards. (To watch Darout’s track record, click here)

Overall, the 4 recent analyst reviews on VERV tend to the bullish side, breaking down 3 to 1 in favor of Buy over Hold for Strong Buy consensus rating. The stock is currently priced at $63.40, and its recent gains have pushed it close to the $68.67 average price target. (See VERV stock analysis on TipRanks)

DraftKings, Inc. (DKNG)

The second stock we’ll look at is Draft Kings. This takes us into the world of online fantasy sports and sports betting, a major source of entertainment for sports fans worldwide, offering them vicarious participation and a chance to experience the risk inherent in the games. DraftKings works on an online model, and has expanded far outside of its New Jersey roots. In recent months, the company has added online casino gaming and lottery games to its sports betting and fantasy league offerings.

Since entering the public markets in April of 2020, DKNG shares have approximately tripled in value, a testament to the popularity of the company’s games and the dedication of the customer and fan base. DraftKings has been expanding in recent weeks, launching online sports betting Arizona, mobile sports book in Wyoming, and a new casino game for online gamblers.

In its 2Q21 report, DraftKings posted $298 million in total revenue, up an impressive 320% year-over-year. The revenue gains were driven by a 281% increase in monthly unique players (MUPs), and a 26% increase in average revenue per MUP, to $80. Looking forward, DraftKings bumped up its fiscal 2021 revenue guidance, from the range of $1.05 billion-$1.15 billion to $1.21 billion-$1.29 billion. Achieving this will translate to yoy revenue growth of 88% to 100%.

Cathie Wood’s firm had already bought into DraftKings, so their purchases of DKNG in the recent disclosure represent an expansion of an existing position. And it’s a strong expansion – ARK bought up 9,252,827 shares of the company, increasing its holding in DraftKings by 212%. The 13,628,251 shares that Wood holds are currently worth over $800 million.

Wells Fargo analyst Daniel Politzer is also on board. The analyst initiated coverage on DKNG with an Overweight (i.e. Buy) rating and a $73 price target that suggests room for 22% growth in the coming year. (To watch Politzer’s track record, click here)

Politzer backs his stance on multiple factors, saying: “Our favorable view of DKNG reflects (1) its position as a leading platform in USSB/iGaming, which we view as the most attractive growth vertical in Gaming; (2) potential upside to its current 17% iGaming share as the company integrates GNOG, ne-tunes its product, and targets casino-first customers; (3) systematic buildup of a highly differentiated, full-scale sports betting and media offering; and (4) strong cross-sell capabilities (50%+ OSB users into iGaming).”

All in all, DraftKings has picked up 16 analyst reviews in recent weeks, including 12 to Buy and 4 to Hold for a Strong Buy consensus rating. The stock is priced at $60.03, and its $72.73 average price target implies an upside potential of 21% in the next 12 months. (See DKNG stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The post Cathie Wood Bets Big on These 2 "Strong Buy" Stocks appeared first on TipRanks Financial Blog.

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