We recently compiled a list of the 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood. In this article, we are going to take a look at where Spotify Technology S.A. (NYSE:SPOT) stands against the other stocks.
As the saying goes, time and tide wait for nobody. This also holds true for Wall Street, where not only are fortunes made in a blink of an eye, but things can take a 180 degree turn the next moment. The same appears to be true for Cathie Wood of Ark Investment. While most hedge funds focus on creating balanced portfolios that seek to leverage all kinds of stocks, Wood’s firm chooses to focus exclusively on high growth sectors that it believes will disrupt the future. Wood is one of Tesla’s biggest bulls, and her insights have proven to be correct as the electric vehicle maker has defied all predictions of doom and gloom and managed to deliver hundreds of thousands of vehicles globally.
Since Insider Monkey tracks hedge fund data and investments to provide readers with the best stock picks, we’ve been following Wood for quite some time now. We took a look at her long term stocks as part of our coverage of 10 Best Stocks To Buy and Hold For 5 Years According To ARK’s Cathie Wood in 2021. Back then, Wood was a celebrity as her high-profile bets on the technology industry were paying off as the sector surged due to the booming demand in tech resulting from lock downs and stay at home mandates. Wood’s fund returned 20% in 2020, and it led to a long interview with Bloomberg. In this talk, she stressed that Ark’s investment horizon was five years, so any temporary corrections left her unfazed since the firm was in for the long haul. She added that while big ticket technology names were good stocks, the goal of her firm was to identify the next FANGs (now FAANG), and one sector that was ripe for growth was the DNA sector. Other sectors that she highlighted were ripe for growth in 2021 were artificial intelligence, energy storage, robotics, and blockchain.
Fast forwarding to 2024, let’s see how her top stocks have performed since then. Focusing exclusively on her top ten stocks back then and as of the first quarter of this year, only four stocks remain on the list. The rest have either been relegated to lower weights in the portfolio or have been eliminated altogether. The four stocks that remain have displayed mixed performance since the start of 2021. The worst performer has lost 86% since then, while the others are down by 73% to 39%. However, since these stocks are nevertheless still a part of Ark’s portfolio, it’s clear that Wood’s is convinced of their potential to disrupt the market and is holding on to them with this belief.
As for the stocks that were eliminated, several of these have bled more than 80% since then, while one has lost all of its value and been de listed from the NASDAQ exchange. Other stocks have also lost more than 90% of their value since 2021, and given that these belong to sectors such as telehealth and online education, it’s understandable since these sectors posted unbelievable gains during the era of lock downs but failed to retain investor interest once the situation normalized. Finally, none of the stocks that were part of Cathie Wood’s top stocks in 2021 have posted returns since then.
Shifting gears, investing in 2024 has seen the stock market divided into technology and non technology sectors. Even within the former, it’s mainly artificial intelligence and associated stocks that have delivered strong returns. So, Wood, whose firm targets high growth and disruptive stocks, has continued to struggle this year too. Ark Invest’s flagship ARKK fund is down 16.7% year to date, while tech heavy stock indexes are up by almost 20%. Disruptive companies require easy credit and robust business spending – both of which struggle in a high interest rate environment.
However, not all of Cathie Wood’s 2024 stock picks have suffered. Some of the strongest performers belong to social media, cloud-based advertising, financial services, molecular testing, and counter terrorism data analytics services. These stocks are up by 48%, 36%, 83%, 76%, and 52% year to date. On the flip side, some sectors that have struggled are biotechnology and software as a service (SaaS). Cathie Wood’s biotechnology stocks have lost anywhere between 86% to 64%, while her SaaS pick has bled 58%.
The last couple of years have been hard for growth stocks that are not part of the booming semiconductor industry. This is because of high interest rates, which not only damped investor risk appetite but also made it difficult for these firms to invest in growth. Since Wood is a pure play growth investor at heart, it’s unsurprising that her stocks have also suffered during this period. Ark’s latest investment portfolio was worth $14.4 billion as of March 2024 end, and given that some investors are optimistic that the Fed might finally start to cut interest rates soon, we decided to do a follow up piece and take a look at the top Cathie Wood stocks during Q4 2020 and see how they have performed since then. When reading about these stocks, readers are also advised to remember that the market of 2024 is a complete 180 degrees from the market of 2020 as back then interest rates were low and Internet and personal computing stocks were booming.
Our Methodology
For our list of the best Cathie Wood stocks to buy and hold for five years, we scanned her Q4 2020 SEC filings and picked out the top ten stocks in which her firm had invested the most. Then, their performance since then was evaluated.
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 person wearing headphones listening to an audio streaming service.
Spotify Technology S.A. (NYSE:SPOT)
Ark Investment’s Q4 2020 Investment Stake: $741 million
Number of Q1 2024 Hedge Fund Investors: 77
Share Price Performance Since 2020 End: -0.28%
Spotify Technology S.A. (NYSE:SPOT) is the popular music and audio content streaming services provider. Wood first bought the shares in Q2 2018, and after bumping her stake, has now trimmed her position to $42 million as of Q1 2024. Between 2021 and 2023, Spotify Technology S.A. (NYSE:SPOT) has grown its revenue from €9.6 billion in 2021 to €13.2 billion as of 2023 end. However, 2021 was the last year of profitability for the firm, and since then, its operating expenses have outpaced operating income, leading to consecutive annual losses. Spotify Technology S.A. (NYSE:SPOT) is aware of the operating losses, and it has cut down its workforce, brought a new chief financial officer on board, and merged its Parcast and Gimlet podcast studios into Spotify Studios after eliminating 200 workers. Despite the fact that it’s one of the oldest podcast providers, Spotify Technology S.A. (NYSE:SPOT) continued to grow its net and Premium users in 2023. The former grew by 113 million users while the latter boomed by 31 million, allowing it to further penetrate the market to demonstrate that there is additional room for growth and increase its revenue generation opportunities to offset operating losses.
Fund Artisan Partners commented on Spotify Technology S.A. (NYSE:SPOT)’s cost problems and the room to grow in its Q1 2024 investor letter. Here is what the fund said:
Spotify is a leading global audio streaming franchise with 600 million monthly active users. We believe its position in the supply chain is solid given a secular trend around the fragmentation of music as well as internal product and pricing initiatives. Shares rallied after the company reported strong earnings results, including growth of 23% for monthly active users, 15% for premium subscribers and 16% for revenue. The company also reported 140bps of gross margin expansion, to 26.7%, which we believe still has further to go due to likely price increases, potentially better terms with labels and further cost discipline.
Overall SPOT ranks 10th on our list of the best stocks to buy and hold for 5 years according to Cathie Wood. You can visit 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of SPOT as an investment, our conviction lies in the belief that 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 SPOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
