If you asked Cathie Wood what her favorite stock is, she’d most likely answer that it’s Tesla (TSLA -0.60%). The electric-vehicle maker easily ranks as the biggest holding among her Ark Invest funds.
But is Tesla the biggest potential moneymaker in the Ark portfolio? Maybe. However, I think there’s another stock that really stands out. Here’s the one Cathie Wood stock most likely to turn $100,000 into $1 million over the next 20 years, in my opinion.
A lot of contenders
Choosing only one stock from all of Wood’s holdings isn’t easy. There are a lot of contenders that I could easily envision delivering a 10x return over a period of two decades.
Tesla is definitely one of them. If the robotaxi market takes off as much as Ark Invest predicts it will, Tesla might not take 20 years to grow an initial investment of $100,000 into $1 million.
Beam Therapeutics is another potential huge winner. The company is only in its early stages, but its base-editing technology (a super-precise type of gene editing) could be a game changer.
Wood really likes UiPath these days. The up-and-coming AI stock ranks as Ark Invest’s second-biggest position. I wouldn’t be surprised if UiPath’s robotic process automation technology really gains momentum over the next decade and beyond.
Downsides for many
Those aren’t the only stocks that Wood owns that could be 10-baggers over the next 20 years, either. But there are several downsides to most of them.
Many of the companies in Ark Invest’s portfolio aren’t yet profitable. That makes assessing their valuations with a high level of confidence challenging.
Most of these stocks are risky because they’re so early in their life cycles. Beam is a good case in point. Some of them might not even survive for two decades much less deliver 10x returns.
As for Wood’s stocks that are already profitable, quite a few of them are priced at sky-high premiums. Tesla, for example, has a forward earnings multiple of nearly 60x. There’s an awful lot of growth already baked into the share price.
One more thing hit me. While Wood focuses on innovators, many of the companies in her Ark Invest portfolio face considerable competition. A stock is more likely to be a 10-bagger if it has a strong moat.
A potential millionaire-maker
I scoured the list of the 120-plus stocks in Ark Invest’s portfolio looking for any that didn’t have those downsides. Already profitable. A solid business built for the long run. Huge growth prospects. A reasonable valuation. A strong moat. One floated to the top: Vertex Pharmaceuticals (VRTX -0.15%).
Let’s start with Vertex’s moat. The big biotech markets the only therapies that treat the underlying cause of cystic fibrosis (CF). Its nearest competition is years away from even having a shot at bringing a product to market.
That moat ties directly into Vertex’s strong profitability. Vertex racked up over $1.6 billion in profits in the first half of 2023. It sits atop a cash stockpile of $12.6 billion.
The company has leveraged its CF success to build a formidable pipeline. Vertex already awaits regulatory approvals for exa-cel in treating rare blood disorders sickle cell disease and transfusion-dependent beta-thalassemia. It seems likely to be in a position to file for approvals next year for non-opioid pain drug VX-548 and a new vanzacaftor-based combo that could be its most powerful and profitable CF therapy yet.
Looking just a few years down the road, Vertex could launch another new product that opens up a huge market. It’s evaluating inaxaplin in a pivotal clinical study targeting APOL1-mediated kidney disease (AMKD). To put this opportunity into context, CF affects an estimated 88,000 patients while AMKD affects around 100,000 patients. And there’s currently no approved therapy for AMKD.
All of these pipeline candidates have megablockbuster potential. All of them have also passed the earlier clinical stages that are associated with a greater risk of failure. But there is at least one early stage program that could be huge for Vertex: The company believes it’s on track to eventually roll out a cure for type 1 diabetes.
Most likely to succeed
Is Vertex a sure thing to turn $100,000 into $1 million over the next 20 years? No. There’s no sure thing when it comes to investing in stocks.
It’s also possible that Vertex could achieve the goal and still be outperformed by other stocks in the Ark Invest portfolio. However, if I had to put money on the one Cathie Wood stock that’s most likely to succeed, Vertex would be it.
Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Beam Therapeutics, Tesla, UiPath, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.