In this piece, we will take a look at the top ten picks in Ark Invest’s stock portfolio.
If there’s one thing that can be said for sure, it’s that Cathie Wood’s investment approach is one of the most unique on Wall Street. In a finance industry dominated by long, short, value, and growth plays, Wood focuses primarily on high growth stocks which she and her firm believe hold the keys to the future. This has seen Ark Investment, whose latest SEC filings had a cumulative value of $14.4 billion, see some of its investments grow in triple digit percentages while others have floundered.
In fact, we analyzed the long term performance of Cathie Wood’s top stocks as part of our coverage of 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood. This piece analyzed Wood and her firm’s top 13F investments during Q4 2020 and checked their performance over the past three years. Out of these ten stocks, just one was in the green while nearly all others had lost most of their value or were down in red.
During this time, some of Wood’s predictions on the economy also stood at odds with the general consensus among Federal Reserve officials and other members of the finance industry. As a recap, the Fed started to aggressively raise interest rates in 2022 as part of its efforts to combat inflation. This caused a lot of pain for growth investors like Wood, as technology stocks started to fall. In June 2022, which saw the Fed announce a 75 basis point hike, which was the largest since 1994, Wood admitted that she was wrong about inflation. This acceptance came after her remarks in October 2021 on social media, in which she disputed Twitter (now X) founder Jack Dorsey’s assessment that the US economy was headed for hyperinflation. While Dorsey’s worries turned out to be a bit too extreme as well, Wood countered by stating:
“In 2008-09, when the Fed started quantitative easing, I thought that inflation would take off. I was wrong. Instead, velocity – the rate at which money turns over per year – declined, taking away its inflationary sting. Velocity still is falling.”
She added that three factors would force deflation. These were technologically “enabled innovation” driving down costs and making businesses postpone their spending, over leveraged firms selling subpar goods at below market prices, and businesses over ordering in response to the pandemic. These factors led her to conclude that “once the holiday season passes and companies face excess supplies, prices should unwind.”
Of course, as it turned out, prices in America shot to record high levels in October 2022 and devastated technology stocks in their wake. One of the worst hit sectors was the semiconductor industry, and had it not been for the popularity of artificial intelligence, then these stocks would have spent 2023 recovering from their record lows in the prior year.
Shifting gears to analyze Wood’s performance in 2024, her flagship fund is down 10.95% year to date. This stands in sharp comparison to the S&P benchmark’s and the tech heavy NASDAQ’s 15.20% year to date appreciation. In fact, the latter index is made of 100 of the most valuable technology stocks, so the fact that Wood’s flagship fund is down means that her focus on the extreme end of the innovation spectrum is still proving to be a bit too risky for a market that has dealt with the brunt of multi decade high interest rates over the past couple of years.
But what about stocks? Cathie Wood invests in a variety of stocks, ranging from video communications to gene editing and artificial intelligence. So perhaps some of her top stock picks of 2024 have done better during Q1 and Q2 as the market starts to comfortably price expectations for an interest rate cut in September. Well, the top five Cathie Wood stocks that you’ll find out about more as you read through this piece are mostly down. Their performance is -6.57%, 49%, -33.8%, -15.90%, and -5.63%, respectively, with the only stock in the green belonging to a financial trading platform provider that has benefited from the growing market adoption of Bitcoin. For some cryptocurrency stocks that are seeing love from analysts, you can check out 11 Crypto Stocks with Biggest Upside.
While simply analyzing the year to date performance of her top five stocks is an easy way to form an opinion about Cathie Wood’s latest investment strategy, we can also expand our focus to see which stocks she has positioned herself into as the Fed heads to an interest rate cuts. Insider Monkey’s research shows that during Q2 2024, Cathie Wood bought eight new stocks. Additionally, she has also invested in an ETF linked to 7-10 year US Treasury bonds and two exchange traded funds (ETFs) linked to Ethereum. So, which stocks is Cathie Wood buying as the Fed nears an interest rate cut?
Well, out of the eight new stocks that she bought in 2024’s second quarter, two belonged to the 3D printing industry (one of these ranked 4th in our coverage of the top 3D printing stocks), another is a healthcare play that claims to have “world’s largest library of clinical & molecular data,” followed by a cybersecurity stock, a digital promotions software provider, the 6th best SaaS stock to buy according to hedge funds, the 6th stock on this list which is another AI and software play, and the 3rd best undervalued stock to buy according to Reddit. Looking at their year to date performance, it is -33.42% and -77.7% for the 3D printing stocks, 8.99% for the healthcare play, and -6.49%, -35%, 2.47%, -7.49%, and -4.10%, respectively. As Wood would like to remind you, past performance is not an indicator of future returns, so whether she’s positioning herself for a recovery in most of these stocks on the back of a lighter monetary and economic environment is up for you to decide.
With these details in mind, let’s take a look at the top Cathie Wood and Ark Invest stock picks during the second quarter of 2024.
Cathie Wood of ARK Investment Management
Our Methodology
For our list of Ark Invest and Cathie Wood’s latest stock picks, we picked out the ten most valuable positions from Ark Invest’s Q2 2024 investment portfolio.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Investors in Q1 2024: 65
Ark Investment Management’s Q2 2024 Stake: $328 million
Shopify Inc. (NYSE:SHOP) is a Canadian eCommerce retailer that allows merchants to sell a wide variety of products on its platform. Unlike most other eCommerce companies, Shopify Inc. (NYSE:SHOP) separates itself from competitors by offering a one stop shop to merchants that allows them to optimize their businesses by running data analytics through tools such as Shopify Pro and Markets Magic. Additionally, Shopify Inc. (NYSE:SHOP) also offers a payment platform, which allows it to retain customers and leads to high switching costs. Since it is an eCommerce company though, and especially as software analytics packages tend to struggle in a high inflation environment, Shopify Inc. (NYSE:SHOP)’s shares are vulnerable to high inflation. However, Shopify Inc. (NYSE:SHOP) enjoys some advantages of scale, especially since it enables more than $250 billion of spending on its platform. Like other eCommerce firms, any weakness on the cost side and struggles with cash flow can spell trouble for the shares.
Shopify Inc. (NYSE:SHOP)’s management commented on another key aspect of its performance, i.e. international expansion, during its Q1 2024 earnings call:
“This quarter, we continued to make headway on our localization efforts in international markets with tools like shipping localized brochures in Japan, Spain and Italy, helping our merchants ensure a tailored experience and expand their reach. We’ve also been working to get more of our products into more countries. For example, in Q1, we successfully launched our point-of-sale go and point-of-sale terminal in Australia, further increasing the on-ramps into Shopify in this key market. Enabling merchants to sell cross-border to buyers anywhere in the world has been a key focus for us. In Q1, we saw a 70% increase in our markets product over last year, which makes it easy for merchants to sell in local currencies. We are further simplifying international expansion with Markets Pro, our native all-in-one cross-border merchant of record offering, which became generally accessible in the US in September of 2023.
Brands are leveraging Markets Pro to enter global markets within days and see immediate increases in their global sales. Take Chicago-based apparel company, SuitShop, which grew international orders by 600% since adopting Markets Pro or New York based skincare brand, Beekman 1802, which experienced 137% international sales growth in six months. And with cross-border GMV up 15% in Q1, representing roughly 14% of total GMV, we will continue to enable greater cross-border transactions for our merchants. As we mentioned on the last call, we continue to aggressively pursue enterprise brands in 2024, and we are seeing results. Whether it was key events like NRF and Shoptalk, our engagements with the larger brands are escalating every single quarter with our plus and enterprise GMV growth continuing to outpace overall GMV growth.”
9. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Investors in Q1 2024: 45
Ark Investment Management’s Q2 2024 Stake: $329.8 million
Palantir Technologies Inc. (NYSE:PLTR) is a data analytics software platform provider that primarily deals with government customers. Since it’s a software as a service (SaaS) stock, its customer base provides Palantir Technologies Inc. (NYSE:PLTR) the advantage of stability in a tough economy. This is because while enterprise spending typically slows down when interest rates are high, government spending is able to perform better. Like other software stocks, Palantir Technologies Inc. (NYSE:PLTR) has also focused on expanding its platform through offering AI. 2023 was a great year for the stock as the shares rallied by 167%. This came on the back of new initiatives like AI boot camps. Amidst uncertainty about the use of cases of AI, through boot camp Palantir Technologies Inc. (NYSE:PLTR) allowed customers to try out AI and build their use case models relatively quickly. As of mid July, Palantir Technologies Inc. (NYSE:PLTR) had completed more than 1,800 boot camps, indicating strong demand for its AI initiatives amidst a slowdown in federal spending.
Palantir Technologies Inc. (NYSE:PLTR) commented on its cost control initiatives and consumer growth during its Q1 2024 earnings call:
“We delivered our sixth consecutive quarter of GAAP profitability, generating a record $106 million of GAAP net income in the first quarter. We also delivered our fifth consecutive quarter of GAAP operating profit, generating a record $81 million of GAAP operating income in the quarter. Adjusted operating margin expanded to 36% in the first quarter, continuing to highlight the strong unit economics of our business. The revenue and profitability outperformance drove a 3-point sequential increase to our Rule of 40 score from 54 in the fourth quarter of 2023 to 57 in the first quarter of 2024.
This was the third consecutive quarter of an expanding Rule of 40 score. . .Excluding the impact from strategic commercial contracts, first quarter commercial revenue grew 36% year-over-year and 4% sequentially. We had a very strong quarter of commercial bookings. First quarter commercial TCV booked was $505 million, representing 187% growth year-over-year. Our US commercial business continues to see unprecedented demand driven by momentum from AIP. First quarter US commercial revenue grew 40% year-over-year and 14% sequentially to $150 million, surpassing international commercial revenue for the first time. Excluding revenue from strategic commercial contracts, first quarter US commercial revenue grew 68% year-over-year and 22% sequentially. AIP is driving both new customer conversions and existing customer expansions in US.”