Cathie Wood's ARK Invest line of ETFs has taken a massive beating over the past few months. Still, many investors continue to scoop up shares on weakness. There's no denying that Wood has a lot of fans who are more than willing to stick it out through turbulent times. Though it's hard to time the bottom in any ARK ETFs, the recent rally across the wide range of ARK funds is nothing short of encouraging.
Whether it's the start of a historic bounce or another trap for the bulls remains to be seen. Regardless, contrarians who want to bet on innovation may have another reason to give one of the sunken ARKs a second look.
Cathie Wood's ARK Space Exploration & Innovation ETF (ARKX) is one of the latest additions to the ARK roster, and it's also one of the most perplexing.
Are there really enough space-themed stocks to fill up such a passive-investment product? Perhaps not. That's why there are a lot of head-scratchers within the fund. Some may have little to nothing to do with space exploration. Since its inception just over a year ago, the ARKX fund is down just shy of 28%.
Let's have a closer look at three stocks within ARKX using TipRanks' Comparison Tool to see where Wall Street stands with regards to bottom fishing.
L3 Harris Technologies (LHX)Of the stocks named in this list, L3 Harris is the most relevant to the theme of space exploration and innovation. The aerospace technology firm and defense contractor has seen wild swings this year, with the stock spiking in early March, only to give up most of the gains before bottoming out just a few weeks ago.
The company is fresh off a mixed quarter that saw some sluggishness due to the fading macroeconomic environment. Still, the $4.1 billion in first-quarter revenue and mild earnings beat ($3.12 EPS versus the $3.05 consensus) was solid in its own right, given the circumstances.
As a defense contractor, L3 Harris is thriving, with the firm recently securing a $205 million fleet-protection contract, courtesy of the U.S. Navy.
As the U.S. government looks to invest more into space, L3 Harris is bound to be a beneficiary. Over the next decade, space launches and other out-of-this-world contracts could be in the cards as the government looks to take its defenses to the next level. In that regard, L3 Harris is a very intriguing play within Cathie Wood's ARKX fund and perhaps one of the fund's most relevant constituents.
The stock trades at 26.4 times trailing earnings and 2.7 times sales, with a bountiful 1.82% dividend yield.
Turning to Wall Street, analysts are bullish, with a Strong Buy consensus rating based on six Buys and two Holds assigned in the past three months. The average L3 Harris price target of $276.50 implies 13.1% upside potential from current levels.
Deere (DE)Agricultural equipment maker Deere is a weird holding to find in a space-themed ETF. The company doesn't yet sell tractors or combines to firms farming goods in outer space yet. However, the thinking is this could change in the future, especially given Elon Musk's ambitious goal of inhabiting Mars one day.
To do so, agriculture needs to happen, and it can't be sustained without a little help from Deere's wide lineup of quality equipment. As the 10th largest holding in the ARKX ETF with a 2.86% weighting, Deere isn't exactly a needle mover.
Deere may not have any meaningful exposure to space more than a decade from now. Still, Cathie Wood seems to think the agricultural equipment maker is worthy of her ETF, possibly because of automation technologies going on behind the scenes.
Autonomous farming won't just save farmers a ton of time and money; it could be one of the keys to inhabiting a new planet. Undoubtedly, electrification and automation of Deere's fleet is the end goal. As a technology company in disguise, I am a fan of the firm, especially with such a modest multiple.
At writing, the stock trades at 18.5 times trailing earnings and 2.1 times sales. That's a low price to pay for a firm that's developing intelligent equipment that could have the potential to expand into new frontiers.
Wall Street is bullish on the name, with a Moderate Buy consensus rating based on 10 Buys, five Holds, and no Sell ratings assigned in the past three months. Meanwhile, the average Deere price target of $423.79 implies 19.4% upside potential from today's close.
Amazon (AMZN)Finally, we have the e-commerce company that we all know and love in the 13th spot on the ARKX. The company has been facing a bit of turbulence as a result of the slowing consumer and overinvestment in capacity.
Though the company plans to offer logistics services to other retailers to alleviate excess capacity, many investors were very quick to throw the towel on the firm in anticipation of a worsening consumer slowdown.
Amazon's logistical capabilities are impressive. It can ship packages quite quickly to many parts of the world, but it does not have a space-shipping service as of yet, which is why the inclusion in the ARKX makes minimal sense at this juncture.
Even looking ahead 10-20 years, Amazon is unlikely to ship packages to other planets. Still, it's former top boss Jeff Bezos' affinity for space travel that may be why the stock was included in the ARKX. Remember, Amazon isn't just a retailer, just as it's no longer just a bookseller.
As Bezos' rocket firm Blue Origin continues to innovate, one has to think that some space exposure may be in the cards for Amazon at some point in the future. For Prime members, it may mean access to satellite connectivity or the ability to stream Blue Origin space flights through Prime Video. However, for now, investors shouldn't expect Amazon to get in on space tourism, at least not anytime in the near future.
Cathie Wood likely views Bezos' space hobby as a reason to include the stock on the ARKX. Though the space exposure is to be negligible for a longer duration, the stock is looking quite attractive following its 20-to-1 share split.
Wall Street is incredibly bullish, with the average Amazon price target of $180.13 implying 48.7% upside potential from current levels. AMZN stock receives a Strong Buy consensus rating based on 36 Buys, one Hold, and one Sell assigned in the past three months.
ConclusionCathie Wood's ARKX funds are in a slump, but many non-space-related firms within it could help fuel the ETF to outperform its peers. Of the three stocks named, Wall Street is most bullish on Amazon stock.