We recently compiled a list of Ark Invest Stock Portfolio: Top 10 Picks. In this article, we are going to take a look at where Roku, Inc. (NYSE:ROKU) stands against Ark Invest’s other stocks picks.
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.
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).
A large movie theatre filled with people enjoying a film streaming on a smart TV.
Roku, Inc. (NYSE:ROKU)
Number of Hedge Fund Investors in Q1 2024: 39
Ark Investment Management’s Q2 2024 Stake: $762 million
Roku, Inc. (NYSE:ROKU) is a hardware and software firm that provides a platform to enable users to stream television content and hardware that allows them to view the content. Even though its shares are down by nearly 83% since 2020, Roku, Inc. (NYSE:ROKU) has managed to grow its market penetration in the streaming market. Between 2020 and 2023, Roku, Inc. (NYSE:ROKU)’s revenue has grown by 89% on an absolute basis. However, this growth isn’t enough to satiate Wall Street, as investors are worried about a general slowdown in US advertising performance and a plethora of streaming services. These fears aren’t helped by news such as Apple’s Apple TV+ being unprofitable. Roku, Inc. (NYSE:ROKU) is currently seeking to expand in international markets to keep up its pace of subscriber growth. This should take some time to materialize, which then makes a EV to sales ratio of 1.95 unsurprising.
Roku, Inc. (NYSE:ROKU)’s management commented on its international expansion plans during the Q1 2024 earnings call when it shared:
“However, the year-over-year growth rate of streaming services distribution in Q1 2024 was lower than the year-over-year growth rate in Q4 2023 due to lapping past price increases and higher mix-shift towards entry-priced ad-supported offerings. Devices revenue increased 19% year-over-year in Q1, driven by the expansion of retail distribution of Roku branded TVs. ARPU was $40.65 in Q1 on a trailing 12-month basis, flat year-over-year. This reflects an increasing share of streaming households in international markets where we are currently focused on growing scale and engagement. Q1 total gross margin was 44%, down slightly year-over-year. Platform gross margin of 52% was stable year-over-year, while devices gross margin was negative 5%, which was down 8 points year-over-year.”
Overall ROKU ranks 3rd on our list of Ark Invest’s top 10 stock picks. You can visit Ark Invest Stock Portfolio: Top 10 Picks to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of ROKU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
