In this article, we discuss the 5 Cathie Wood stocks hedge funds are selling. If you wish to read our detailed analysis of Cathie Wood’s stock picks and the latest market situation, go directly to Hedge Funds are Selling These 10 Cathie Wood Stocks.
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 77
Decline in Hedge Fund Holders: 31
ARK Investment Management’s Stake Value: $315.05 million
Percentage of ARK Investment Management’s Portfolio: 1.31%
Sea Limited (NYSE:SE) is a Singapore-based company which provides fintech, e-commerce and digital entertainment services. It is also the parent company of e-commerce platform Shopee. The stock suffered a significant investor selloff at the end of the first quarter of 2022, where 77 hedge funds owned stakes in the company. This is in contrast to 108 hedge funds a quarter earlier. As of June 2, the company shares have slumped 62.81% in the year to date.
On May 18, Cowen analyst John Blackledge lowered the firm’s price target on Sea Limited (NYSE:SE) to $115 from $133 and kept an ‘Outperform’ rating on the company shares. He noted that Q1 results were “mixed”, as the below-expectations revenue was partially offset by higher EBITDA.
For the first quarter, Sea Limited (NYSE:SE) disclosed earnings per share of -$0.80, beating consensus estimates by $0.42. Revenue of $2.9 billion for the quarter exceeded estimates by $41.2 million, and signaled growth of 64.41% from the year-ago quarter.
Cathie Wood held 2.63 million shares of Sea Limited (NYSE:SE) worth $315 million, as reported by her Q1 portfolio. This shows a 302% jump over the previous quarter where she owned 654,000 shares of the company.
Farrer Wealth Advisors, an asset management firm, talked about the market position and future prospects of Sea Limited (NYSE:SE) in its Q1 2022 investor letter. It said:
“Sea Limited had been selling off since its peak in early November of ~$363/share. This was driven by both a general sell off in tech, especially non-profitable tech, and a general belief that its gaming arm (Garena) was experiencing a slowdown due to its flagship game Free Fire. Free Fire has experienced a slowdown for three reasons: it is a victim of its own success, and by the end of Q321, nearly 10% of the world’s population already played the game, and thus reaching new users was difficult; A return to normal with people traveling/going out more and spending less time playing games; and the Indian market imposed a ban on the game due to anti-Chinese sentiment (Tencent is a large shareholder in Sea). We believed that these issues, while worth considering, were a bit overblown, and some of the data we saw from 3rd party sources showed that though Free Fire usage was dipping, it wasn’t too drastic. Thus, we marginally added to the position throughout the quarter. This was a mistake. During Sea’s earnings report in early March, the company guidance for Garena (down nearly 35% yoy) showed that the slowdown was far worse than predicted. Secondly, Shopee (Sea’s ecommerce arm) has pulled out of certain markets (in Europe and India), which long-term is probably the right strategy, but short-term hampers the optionality of the business. After considering this information and the guidance from earnings, we decided to significantly trim the position. In our opinion, management does have a bit of egg on its face from an overly aggressive expansion or as one investor called it, “bull market hubris.” We think management’s moves were mostly logical, it’s just that their failures came during an unforgiving market. While we believe that Sea’s future is still bright (especially with regards to their e-commerce and financial services), it will take a few quarters of strong earnings for them to regain their momentum, and for now the capital can be better spent elsewhere.”
4. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 72
Decline in Hedge Fund Holders: 14
ARK Investment Management’s Stake Value: $610.43 million
Percentage of ARK Investment Management’s Portfolio: 2.54%
Shopify Inc. (NYSE:SHOP) operates e-commerce platform Shopify, and is based in Canada. Its shares represented 2.54% of Cathie Wood’s first quarter portfolio, with 903,000 shares priced at $610.4 million. This was a 27% increase in holding over the previous quarter, where Wood owned 715,000 shares of the company.
But Cathie Wood went against the larger hedge fund sentiment around Shopify Inc. (NYSE:SHOP) stock. 72 bullish bets on the company shares at the close of the first quarter showed a negative trend from the previous quarter, where 86 hedge funds were long on Shopify Inc. (NYSE:SHOP) shares. The aggregate value of Q1 holdings stood at $5.78 billion.
Jefferies analyst Samad Samana on May 23 reiterated a ‘Buy’ rating on Shopify Inc. (NYSE:SHOP) shares, and reduced the firm’s price target to $475 from $550. The analyst sees consumer behavior patterns shifting amidst a slowdown in e-commerce spending.
Shopify Inc. (NYSE:SHOP) posted $1.2 billion in revenue for the first quarter, falling below estimates by $36.4 million. EPS was recorded at $0.20, also missing analysts’ estimates by $0.45.
Baron Funds, an investment firm, mentioned the prospects of Shopify Inc. (NYSE:SHOP) in its Q1 2022 investor letter. The fund said:
“Shopify Inc. is a cloud-based software provider offering an operating system for multi-channel commerce. Shopify has been adopted by over two million merchants who processed $175 billion of gross merchandise volume in 2021, making it the second largest e-commerce player in the U.S. The stock corrected sharply in the first quarter, declining 51%, as a result of investor rotation out of fast-growing, long-duration stocks and after the company released quarterly results, expecting a normalization in the rapid growth it has experienced during the early stages of the pandemic. We remain shareholders as we believe Shopify has a long runway for growth addressing less than 1% of global commerce spending with a unique and competitively advantaged platform.”
3. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 84
Decline in Hedge Fund Holders: 12
ARK Investment Management’s Stake Value: $1.12 billion
Percentage of ARK Investment Management’s Portfolio: 4.7%
Block, Inc. (NYSE:SQ) is a fintech company headquartered out of California. It operates popular digital payments platforms including Cash App, and Square. ARK Investment Management was the leading shareholder of the company, with a $1.12 billion stake consisting of 8.3 million shares reported at the end of the first quarter of 2022. This is up 35% over the previous quarter where Wood held 6.18 million shares of Block, Inc. (NYSE:SQ).
On May 23, Truist analyst Andrew Jeffrey reiterated a ‘Buy’ rating on Block, Inc. (NYSE:SQ) shares, and slashed the price target to $145 from $165. He sees an attractive buying opportunity for long-term investors, given that the market has a poor understanding of the firm’s underlying business fundamentals. The analyst feels Block, Inc. (NYSE:SQ) has potential to become one of the most important fintech companies in the world, rivalling giants such as Visa (NYSE:V).
12 hedge funds sold off their positions in Block, Inc. (NYSE:SQ) during the first quarter, with the total number of bullish hedge fund bets coming in at 84 at the close of the first quarter. The company’s EPS for the first quarter missed estimates by $0.02. Quarterly revenue was also below forecasts by $179.56 million, registering at $3.96 billion.
Farrer Wealth Advisors, an investment firm, mentioned Block, Inc. (NYSE:SQ) in its Q1 2022 investor letter. The fund said:
“Block (formerly Square): We ‘adopted’ Block’s stock after the company bought Afterpay, which we were investors in. We had been trimming the Afterpay position throughout 2021 and trimmed again after the acquisition, so the position was quite small. We held onto that small portion, as we did think the acquisition made sense and were excited to see the two companies integrate and for Block to create a closed loop network between merchants and consumers. However, the market punished most highly valued tech stocks over the last months, and we saw the position move against us by over 50%. We are firm believers that when a stock goes against you by 50%+, you need to do something about it. Either trim/sell and reinvest or buy more. In the case of Block, the original reason for holding was to see how the acquisition and integration with Afterpay panned out. The market did not give us the time to see this play out, thus we were not comfortable adding more to the position. Further for the stock to recover to our purchase price, we felt the company’s valuation would need to command a future exit multiple that the market would be unlikely to pay in this environment. Given this, we exited the remainder of the position.”
2. Coinbase Global, Inc. (NASDAQ:COIN)
Number of Hedge Fund Holders: 46
Decline in Hedge Fund Holders: 11
ARK Investment Management’s Stake Value: $1.32 billion
Percentage of ARK Investment Management’s Portfolio: 5.53%
Coinbase Global, Inc. (NASDAQ:COIN) is a leading cryptocurrency trading platform. It has been hit by the recent negative market sentiment around tech stocks, as well as an outstanding drop in crypto prices. The company shares are down 70.60% in the year to date as of June 2.
A detailed examination of the 900+ hedge funds in the database of Insider Monkey showed that 46 hedge funds owned stakes in Coinbase Global, Inc. (NASDAQ:COIN) at the end of the first quarter, with a collective price tag of $2.32 billion. This is down from 57 hedge funds a quarter ago with $3.46 billion worth of positions in the company.
But Cathie Wood increased her position in Coinbase Global, Inc. (NASDAQ:COIN) by 29% in the first quarter, establishing her as the firm’s biggest shareholder with a $1.32 billion stake consisting of 6.98 million shares. In contrast, she held 5.45 million shares of Coinbase Global, Inc. (NASDAQ:COIN) according to her Q4 portfolio.
Coinbase Global, Inc. (NASDAQ:COIN) reported EPS below estimates by $2.17 for the first quarter, while its quarterly revenue of $1.17 billion also underperformed analysts’ forecasts by nearly $310 million.
On May 26, Cowen analyst Stephen Glagola initiated coverage of Coinbase Global, Inc. (NASDAQ:COIN) with an ‘Outperform’ rating and a price target of $85, commenting that the company was “built to last.” The analyst forecasts double-digit compound annual growth rate (CAGR) for “the foreseeable future,” and believes the company’s regulatory adherence and security infrastructure provide it a structural advantage over global competitors.
Investment firm Longleaf Partners Fund talked about Coinbase Global, Inc. (NASDAQ:COIN) in its Q4 2021 investor letter. It said:
“We also have seen plenty of IPO/SPAC craziness showing both that private players need public markets more than they admit and that there is more volatility embedded in these newer companies than a private quarterly mark might admit. As for how efficient both the private and public markets are, we would encourage you to really delve into some of those multi-hundred-page S1s for many of the newest public companies to see the huge gap between the last valuation at which the company was funded and/or granted shares to its executives and the often much higher price at which the company went public – Coinbase is a prime example.”
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Decline in Hedge Fund Holders: 11
ARK Investment Management’s Stake Value: $1.71 billion
Percentage of ARK Investment Management’s Portfolio: 7.17%
Tesla, Inc. (NASDAQ:TSLA) is Cathie Wood’s largest Q1 holding, with 1.59 million shares priced at $1.71 billion. The investor trimmed her position in the EV maker by 18% over the previous quarter, and has reduced her Tesla stake for the last four quarters in a row. She owned 5.79 million shares of Tesla, Inc. (NASDAQ:TSLA) at the end of Q1 2021.
The professional investment world also reduced its exposure to Tesla, Inc. (NASDAQ:TSLA) at the end of the first quarter, where 80 hedge funds were long on the company shares, as compared to 91 hedge funds a quarter ago.
On May 24, Daiwa analyst Jairam Nathan kept an ‘Outperform’ rating on Tesla, Inc. (NASDAQ:TSLA) shares, and decreased the price target to $800 from $1,150. Owing to supply chain issues in China, and a weak macro outlook, shares of Tesla, Inc. (NASDAQ:TSLA) have plummeted 35.40% so far in 2022, as of June 2.
Tesla, Inc. (NASDAQ:TSLA) reported 80.54% growth in revenue for the first quarter, posting $18.76 billion which came in above market estimates by $917.8 million. Earnings per share were reported at $3.22, exceeding analysts’ forecasts by $0.95.
Baron Funds, an investment firm, mentioned the market position of Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter. Here’s what they said:
“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”
You can also take a look at 10 Cheap Healthcare Stocks To Buy Now and 10 Best EV Stocks to Buy According to Cathie Wood.
