10 stocks star fund manager Cathie Wood is buying for 2021—and 3 she’s avoiding

Wood will tell you that her funds’ recent popularity is due, at least in part, to investors recognizing that the ground was “shifting underneath their feet” as innovation “exploded” during the pandemic—and “they knew they didn’t have enough exposure to it,” she told Fortune over video one evening in late March.  

But recently things have been rockier. Wood’s ETFs tumbled as much as 30% at one point after hitting an all-time high in February as tech stocks sold off en masse. Her flagship strategy is now barely in the green for the year, and there are plenty of skeptics on the Street.

Some say her “hot hand” may burn out on the back of her funds’ monster performance; others worry her firm’s ballooning size may make it hard to keep notching such impressive returns amid concerns of a broader stock market bubble. Morningstar analyst Robby Greengold, meanwhile, recently dished out a highly skeptical, yet compelling, review of the ARK Innovation ETF, criticizing the firm’s “team of inexperienced analysts, go-with-your-gut risk management approach, and bloated asset base [that] raise doubts about whether this fund’s outstanding historical results can continue.”

But the naysayers are hardly cooling investor enthusiasm for ARK. Per Bloomberg, investors have recently poured another $1 billion into two of ARK’s ETFs: ARK Innovation and the new Space Exploration and Innovation fund, ARKX, which already boasts one of the most successful launches of an ETF ever.

As for Wood, she isn’t losing sleep over a little skepticism. In fact, she invites it.

“I’m actually glad there’s a wall of worry,” Wood declares. Because, as she often says, “the strongest bull markets are built on top of walls of worry.”

For the adventurous investor who’s in it for the long haul, Fortune asked Wood how she’s investing for 2021, what stocks investors should take a look at (and avoid), and how she’s keeping her cool as her funds take her—and her disciples—on a proverbial roller-coaster ride.

10 stocks for investing in the big picture

Wood doesn’t talk like most money managers you’ll encounter on the Street.

As an ardent Christian, she believes “we are here to procreate and to create” and argues that “investing used to be all about the future, creation.” Her mission, she has stated, is to direct Wall Street’s focus back to that forward-looking, big picture strategy.  

That’s not a worldview that sweats the near-term stuff. But despite a reprieve in recent days, the risk of rising inflation and Treasury yields paints an uncertain picture for growth stocks, like those that dominate Wood’s portfolios. And some investors are still angling to position for higher inflation, as data is showing a pickup in prices. But Wood isn’t too concerned. She argues, “On the other side, the surprise is going to be how rapidly that unwinds.”

So instead of shifting into the rotation trade as many on the Street did in early 2021, Wood has been calmly snapping up some of her most-favored names “at bargain basement prices,” she says.

Among those stocks she’s bullish on throughout 2021 and beyond? Longtime ARK favorites Zoom (ZM, $329), Teladoc (TDOC, $188), Square (SQ, $258), Exact Sciences (EXAS, $127), Roku (ROKU, $375), and Tesla (TSLA, $732) have all been on Wood’s shopping list lately. “We’ll probably be buying all of our top 10” holdings, she says.

Coming out of the pandemic, Zoom Video Communications may seem like a quizzical stock pick. The company’s growth exploded during the transition to work from home, as has its stock price (and, more important, its valuation). The worry on Wall Street now is that Zoom’s day in the sun is likely over as businesses beckon employees back to the office. But Wood is remaining steadfast: “We think that because of the productivity and efficiencies we all learned about because of the coronavirus, that a stock like Zoom is going to be a very good platform stock,” she argues. At $329 a share with a hefty forward P/E of 88, Zoom isn’t necessarily a bargain. But Wood believes Zoom’s “real power out there is in not intracompany but intercompany, in a way that Microsoft,” a competitor with its Teams business, “cannot scale and do.”

Teladoc, meanwhile, is another COVID beneficiary that Wood thinks will continue to play a key role in our lives post-pandemic. Recently, the stock has been “almost cut in half,” Wood notes, falling from nearly $300 a share in February to trade at roughly $190. Despite its recent woes in the markets (and a bout of insider selling), Wood argues that “telemedicine, I think, is going to be one of the most important beneficiaries of artificial intelligence.” And Teladoc in particular should benefit, because “unless a person has to see a doctor [in person],” Wood says, “I think we’re going to see a lot more health care done through telemedicine.” Analysts, meanwhile, expect Teladoc to still grow revenues by nearly 82% in 2021, per S&P Global. (The company isn’t expected to turn a profit, however, until 2023.)

Of course, Wood is perpetually bullish on electric-vehicle maker Tesla, a stock she credits with putting ARK “in the headlines more than a number of times.” She says she’s been buying up as much Tesla as she can muster during its recent rout in the markets, as increasingly other Wall Street firms are betting Tesla will benefit from the Biden administration’s climate-friendly infrastructure proposal. And Wood has some bullish projections: ARK recently put a $3,000 price target on Tesla in 2025, far and away the headiest on the Street, and she believes unit growth of electric vehicles will compound at an 82% annualized rate over the next five years. “You’re not gonna see that forecast anywhere,” she claims. With a forward P/E of nearly 173, the Elon Musk–led firm is among the more expensive stocks in ARK’s chest. But the Street anticipates Tesla can grow revenues by more than 56% in 2021.

One space Wood thinks is the “most misunderstood and mis-priced”? Genomics, a long-favored area for ARK. Wood is bullish on the sector because “the convergence of DNA sequencing, artificial intelligence, and these gene-editing, gene therapies” will lead to “cures [for] disease,” she says. “I don’t think analysts understand how to price in cures,” Wood argues. She highlights “more mature” biotech stocks like Regeneron (REGN, $481), Vertex (VRTX, $217), Novartis (NVS, $87), and Takeda (TAK, $17), that “are using these technologies aggressively, as they are trying to move into the new world.” Among the bunch, Regeneron trades the most cheaply, at a forward P/E of roughly 11—far less expensive than many of Wood’s other high-flying picks.

The no-go list

True to form, Wood isn’t interested in many of the popular cyclical areas that the Street has recently taken a shine to.

She says to avoid financials and energy (the sectors are up 19% and 30%, respectively, year to date), because “we believe they are going to be the most disrupted and disintermediated during the next five years.” Financial stocks like banks may be in harm’s way, argues Wood, as “contactless payments have become very important. We’re seeing amazing adoption there in all demographics,” she notes. “Banks are going to have a lot of trouble in that environment, so I would be very careful of them.”

The auto sector, meanwhile, is facing its own headwinds as the shift toward electric vehicles and government support for climate action puts more pressure on traditional automakers. Wood obviously favors the likes of Tesla, but she argues that even though a growing list of companies are, “to their credit,” trying to go electric, “some of them will make it, but we think most will not. They’ll either be absorbed by other companies as they’re trying to consolidate their positions and cut costs in the old world, or we think they could actually go out of business.”

As for stocks she’d steer clear of? Wood singles out Intel (“[It will] be displaced by ARM and RISC-V during the next five to 10 years, so I wouldn’t bet on that one.”); Illumina (“I think it lost the plot. It stopped cutting costs aggressively and just wanted to milk the cash flow.”); and General Motors (“I’d probably not bet on any auto stock.”) as names not to shell out for in 2021.

Instead, Wood is focusing on “the innovation platforms,” she says—like DNA sequencing, robots, energy storage and vehicles, A.I., and blockchain technology: “There’s no stopping them now.”

The long game

And as a money manager who says she prizes a five-year time horizon as the “most important variable” she considers when examining a stock, Wood certainly subscribes to playing the long game: “Our forecasts in year five really don’t change based on volatility in the market,” she says.

But more than that, Wood views the recent selloff in her ETFs, which at one point dipped into bear market territory in March, as an outright blessing. “All that has done is increased…the rate of return our portfolios should deliver during the next five years, so we’re actually pretty excited.”

However, short interest (or bets against) on ARK’s flagship fund is hovering around 10%, over triple that of the S&P 500 broadly, per Bloomberg data. “I know some people will be looking at this and saying, ‘Are you kidding me? You just lost me 35%,’” Wood notes. Still, she asks of her followers, “keep your eye on the prize. Right or wrong, given our research, we expect our flagship portfolio to triple over the next five years, and we have not lost any confidence in that at all.”

As a superstar tech investor who makes her money largely from riskier bets and volatile portfolios, Wood has some rather surprising ambitions: “You know what I’d really love to be remembered for? Helping people with their retirements; helping people make their lives more comfortable,” she says.

All stock prices calculated as of April 14, 2021.

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