Catherine Wood (Trades, Portfolio), the founder, chief investment officer and CEO of ARK Investment Management, has made a name for herself through investing in “disruptive innovation” stocks.
Implementing an iterative process that combines top-down and bottom-up research, the New York-based firm seeks to invest in companies that may benefit from cross-sector innovations like artificial intelligence, robotics, energy storage, DNA sequencing and blockchain technology.
After a blowout year in 2020, the ARK Innovation ETF, the firm’s flagship fund, returned -23.36% in 2021, severely underperforming the S&P 500’s 28.7% return.
With continued inflation and rising interest rates, it does not appear the firm is doing well so far this year either as its top 20 holdings are mostly in the red.
In an open letter published Monday on ARK’s website, Wood took aim at the Federal Reserve for increasing interest rates in an attempt to combat inflation, saying she is concerned it is making a “policy error.”
Rather than focusing on employment numbers and price indexes for previous months, Wood said it would be better if the central bank looked to commodity prices that indicate the biggest economic risk is actually deflation.
“The Fed seems focused on two variables that, in our view, are lagging indicators –– downstream inflation and employment ––both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates,” she wrote.
Despite the poor recent performance of most of her holdings, the GuruFocus All-in-One screener, a Premium feature, found two stocks in Wood’s second-quarter 13F portfolio have outperformed the S&P 500 Index by at least 15% over the past year as of Oct. 10. The screener also looked for companies with price-earnings ratios between zero and 14 and have a predictability rank of at least one out of five stars.
They are Pfizer Inc. (PFE, Financial) and Sonoco Products Co. (SON, Financial).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Pfizer
Outperforming the benchmark index by approximately 19.58% over the past 12 months, Pfizer has a $236.42 billion market cap; its shares were trading around $42.13 on Mondaywith a price-earnings ratio of 8.24, a price-book ratio of 2.70 and a price-sales ratio of 2.39.
The New York City-based pharmaceutical company, which produced one of the Covid-19 vaccines in partnership with BioNTech SE (BNTX, Financial), also manufactures treatments for oncology, inflammation, cardiovascular and other therapeutic areas.
The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past financial performance and analysts’ future earnings projections.
The GF Score of 87 out of 100 indicates the company has good performance potential going forward. While it received high marks for profitability, growth, financial strength and momentum, the GF Value rank was low.
GuruFocus rated Pfizer’s financial strength 7 out of 10, driven by adequate interest coverage and a high Altman Z-Score of 3.37 that indicates it is in good shape. The return on invested capital also eclipses the weighted average cost of capital, so value is being created as the company grows.
Despite having declining margins, the company’s profitability scored an 8 out of 10 rating as its returns on equity, assets and capital are outperforming versus competitors. Pfizer also has a high Piotroski F-Score of 7 out of 9, meaning operating conditions are healthy, and a one-star predictability rank. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Pfizer, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 0.97% of its outstanding shares. Diamond Hill Capital (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Richard Pzena (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Charles Brandes (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio) and Kahn Brothers (Trades, Portfolio) also have significant positions.
Sonoco Products
Topping the S&P 500 by roughly 16.23% over the past year, Sonoco Products (SON, Financial) has a market cap of $5.72 billion; its shares were trading around $58.61 on Monday with a price-earnings ratio of 13.69, a price-book ratio of 2.96 and a price-sales ratio of 0.89.
Headquartered in Hartsville, South Carolina, the company manufactures packaging products for a number of end markets.
According to the GF Value Line, the stock is modestly undervalued currently.
Further, the GF Score of 79 indicates the company is likely to have average performance going forward. It raked in high grades for profitability, GF Value and momentum and middling marks for growth and financial strength.
Sonoco’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is manageable due to sufficient interest coverage. The Altman Z-Score of 2.44, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The ROIC also exceeds the WACC, so value creation is occurring.
The company’s profitability fared better, scoring a 7 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6, indicating conditions are typical for a stable company. Sonoco also has a one-star predictability rank.
With 0.18% of its outstanding shares, Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest guru shareholder. Other guru investors of Sonoco are Mario Gabelli (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
