In a world where the intersection of technology and finance often dictates the pace of change, few names in the investing landscape command attention quite like Catherine Wood (Trades, Portfolio), the enigmatic founder and CEO of ARK Invest, which is behind constant money maker ARK Innovation ETF (ARKK, Financial).
A firm advocate for the transformative power of disruptive innovation, Wood has captivated both Wall Street aficionados and retail investors with her bold bets on high-growth sectors like artificial intelligence, blockchain and gene editing. But what really sets her apart are her stock picks—unconventional choices that seem to defy traditional market wisdom yet have often yielded remarkable returns.
Whether it's her bullish stance on electric vehicles or her unwavering belief in the promise of genomics, Wood's stock selections are carefully curated manifestations of her broader investment philosophy. They have not only turned heads, but also changed how many think about long-term investing. I aim to dissect this prowess and vision in this discussion, focusing on two specific stock picks that epitomize Wood's investment strategy.
These two picks are a microcosm of Wood's larger thesis, illuminating her knack for identifying companies poised to revolutionize their respective industries.
Zoom Video Communications
Zoom Video Communications Inc.'s (ZM, Financial) latest earnings release paints an intriguing picture for investors. Despite a modest 3.6% uptick in year-over-year revenue to $1.14 billion for the second quarter of fiscal 2024, the company posted a remarkable 298% surge in net income to $181.97 million. Additionally, operating income grew by 46%, marking a return to form after the company’s fiscal digestion of pandemic-induced hypergrowth. Earnings per share clocked in at $1.34, beating Wall Street expectations by 26.5%. Even though the stock exhibited a negative return over the past year, these figures indicate that Zoom is far from running out of steam.
Wood's investment
Despite the generally positive trajectory, there has been a recent move among some institutional investors to reduce their holdings in Zoom. As of June 30, Wood had curbed her investment by 3.72%, which had a 0.21% impact on the equity portfolio. Specifically, 404,727 shares were sold, leaving a remaining position of 10,462,306 shares.
This was conducted at a price of approximately $68.85, a modest 2.81% increase from the average trading range. This reduction may be part of a broader portfolio rebalancing rather than a comment on Zoom’s strong fundamentals.
Zoom's appeal
Investors looking for deep value in the tech sector, especially those fond of Wood stocks, might find Zoom appealing. The company's net profit margin increased substantially to approximately 16%, showing operational efficiency. Further, Zoom sits on a robust 30% net cash position, suggesting a significant margin of safety. Zoom continues to innovate on the competitive front, albeit within a fiercely competitive environment that now includes heavyweights like Microsoft (MSFT, Financial) and Cisco (CSCO, Financial). Yet Zoom's recent performance showcases a company that is not just holding its own, but thriving in aspects like earnings growth and cash flow, with a net change in cash of $349.82 million, up by 174%.
Tesla
Tesla Inc. (TSLA, Financial), the EV behemoth, continues to defy gravity with a staggering year-to-date return of 127%. The company's latest quarterly report reveals a robust financial landscape, as it boasted revenue of $24.93 billion—a 47% year-over-year increase.
Further, Tesla's net income ascended to $2.7 billion, marking an approximately 20% uptick compared to the prior year. Impressively, the earnings per share not only increased by 20%, but also surpassed analysts' expectations by an 11% margin. This financial vitality comes amid Tesla's global expansion ambitions, such as its recent proposal to manufacture battery storage systems in India and the upcoming human trials of Elon Musk-backed Neuralink.
Wood's investment
Despite a 596,014-share reduction during the second quarter—resulting in a decrease of 0.85% in its holding—Wood's ARK Innovation ETF still has Tesla as a cornerstone in its investment strategy. The stock currently accounts for a substantial 11.4% of ARKK's total portfolio at 4,843,621 shares. The ETF has had to reshuffle its assets lately, diversifying $14 million into Roblox Corp. (RBLX, Financial)—a video game platform—after reducing its Tesla stake. This positioning underscores Tesla's importance in ARK Innovation's roadmap, especially as traditional automakers face challenges.
Tesla's appeal
As of the most recent data, Tesla's stock price stands at $244.88, a 22.39% increase from its average range of $153.75 to $274.45. This price shift appears to align with ARK's long-term growth aspirations for the company. While the share reduction by ARKK might raise questions, the company's sustained momentum and robust earnings make it a compelling narrative in the sphere of Wood stocks. Tesla seems poised to capitalize on the potential setbacks its competition faces, which only adds to its appeal as a long-term investment.
The pricing pressure on Tesla's full self-driving package may raise some eyebrows, but the company has repeatedly demonstrated its ability to navigate choppy waters. Tesla's journey is far from over, and its current performance suggests a trajectory well aligned with ARK Innovation's long-term growth aspirations.
