These downtrodden companies from Cathie Wood’s flagship fund still have a bright future ahead.

The stock market witnessed a brutal sell-off last week as investors went into panic mode following a surprise spike in inflation for the month of August. The Consumer Price Index released by the Bureau of Labor Statistics revealed that prices increased 8.3% year over year in August. The month-over-month increase came in at 0.1%.

Economists were expecting prices to decline 0.1% over July and were looking for a year-over-year increase of 8.1%. However, the unfavorable readings set the cat among the pigeons and on Sept. 13 the stock market witnessed its worst day since June 2020.

This sell-off means that celebrated investor Cathie Wood, CEO of investment management firm ARK Invest, continues to have a torrid time this year as far as her picks are concerned. The ARK Innovation ETF has shed 57% of its value in 2022, which is not surprising considering the fund’s exposure to fast-growing companies that could disrupt industries.

Two of the fund’s constituents — Nvidia ( NVDA 0.65%) and Unity Software ( U -0.85%) — have witnessed a brutal sell-off this year. While Nvidia is down 55% in 2022, Unity Software stock has crashed 74%. However, both of these stocks could make a terrific comeback over the next five years and their share prices could double. Let’s see why. 1. Nvidia

Nvidia’s year has gone from bad to worse in recent days after the U.S. government imposed restrictions on sales of data center chips to China, a move that could further dent the company’s ability to turn its business around in the near term. Nvidia is already struggling on account of weak demand from the gaming segment where there is an oversupply of graphics cards.

Weakness in the gaming and data center markets, which are two of Nvidia’s biggest businesses, means that the tech giant’s near-term outlook isn’t all that great. As it turns out, analysts expect the company’s top line to remain flat in fiscal 2023 at $27 billion, a far cry from the 61% revenue growth it enjoyed last fiscal year.

However, Nvidia is expected to regain its mojo in fiscal 2024. NVDA Revenue Estimates for Next Fiscal Year data by YCharts What’s more, Nvidia is expected to sustain its impressive earnings growth over the next five years, with analysts forecasting a 23% annual increase in earnings during the forecast period. That’s not surprising as Nvidia has some solid growth drivers that could help it come out of its slump and deliver healthy growth in this timeframe.

The demand for gaming graphics cards, for instance, is expected to increase at an annual pace of 14% through 2026, according to Mordor Intelligence. This doesn’t seem surprising as the personal computer (PC) gaming market is expected to thrive in the long run thanks to the influx of new gamers. IDC estimates that gaming PC shipments could exceed 52 million in 2025 compared to the 41 million units shipped in 2020. This would represent a 27% increase in units shipped over 2020’s figure.

With Nvidia being the leader in the gaming graphics card market with an estimated market share of nearly 80%, according to Jon Peddie Research, it is well placed to take advantage of the long-term growth opportunity in this space. Similarly, the data center market is going to be another major catalyst for Nvidia. The company has expanded its addressable opportunity in the data center space with the addition of server chips to its product portfolio, an area it wasn’t present in before.

All this indicates that Nvidia is in a solid position to increase its earnings at a nice pace over the next five years. Assuming the company clocks the 23% annual earnings growth that analysts are forecasting, its bottom line would increase to $9.54 per share after five years, based on the current fiscal year’s estimated earnings of $3.39 per share.

The stock is currently trading at 43 times forward earnings, which is in line with the five-year average. That’s assuming a similar multiple after five years would translate into a stock price of around $381, which would be nearly triple Nvidia’s current stock price of around $135. So, savvy investors may want to take advantage of the steep decline in this tech stock , as it seems built for solid long-term growth. 2. Unity Software

Unity Software stock has lost its wheels over the past year, with its post-IPO (initial public offering) surge now looking like a long-lost memory.

Unity’s fall from grace isn’t surprising. The […]

source Stock Market Sell-Off: 2 Cathie Wood Stocks That Could Double in 5 Years

editor Stocks ,

Leave a Reply