Cathie Wood’s Wild Cards: 3 Picks with Uncertain End-of-Year Outcomes
Google the words “Cathie Wood stocks,” and you’ll get nearly 40,000 results. The head of Ark Investment Management is one of the most talked about portfolio managers on Wall Street.
Wood’s been loading up on Roku (NASDAQ:ROKU) stock after its nearly 30% decline in 2024. Over the past two weeks, three of the portfolio manager’s ETFs picked up 1.49 million shares for approximately $107 million. It is now the third-largest holding of the flagship Ark Innovation ETF (NYSEARCA:ARKK), with a weight of 7.39% and valued at $622 million.
Wood isn’t afraid to take significant risks, which endears her to so many investors. However, the risks taken have not always delivered the appropriate returns one would expect for such risks. That has opened her up to significant criticism from the investment management industry.
She’s a lightning rod, to be sure. That said, she’s also an excellent source for good tech buys.
Here are three from ARKK’s latest holdings.
Block (SQ)
Block (NYSE:SQ) is ARKK’s third-largest holding with a 6.59% weight. Its shares are up 7% year-to-date.
I’ve been a fan of Jack Dorsey’s company for a while now. I jumped on the bandwagon when Dorsey stopped running Twitter (now X) simultaneously as Block. With two cash generators in Cash App and Square, Dorsey needed to watch the prize. There was never any question Block was the more valuable long-term play.
Clearly, Wood feels this way.
The Motley Fool’s Ryan Vanzo recently made a good point about Block stock. It’s cheap. Like, historically cheap, trading at less than 2x sales. It hasn’t been valued this low since 2016.
The company reported Q4 2023 results on Feb. 22. They included a 24% increase in revenue ($5.77 billion). Excluding Bitcoin (BTC:USD), revenue was $3.25 billion, 15% higher than a year earlier.
As Dorsey stated in its Q4 2023 shareholder letter, the company has got its employee headcount below the 12,000-person cap it has set. He believes that sticking to a hard cap focuses the company on its most important priorities. That’s a good thing.
In 2024, it plans to focus on growing Cash App.
“Cash App aims to become one of the top providers of banking services to households in the United States which earn up to $150,000 per year, a segment that represents approximately 80% of consumers and more than 50% of household income,” Dorsey wrote in the shareholder letter.
With just two million active customers depositing their paychecks into Cash App each month, or 8.7% of its 23 million Cash App Card monthly actives, it’s got plenty of room for growth.
UiPath (PATH)
UiPath (NYSE:PATH) is ARKK’s sixth-largest holding with a 6.06% weight. Its shares are down 0.4% year-to-date.
Investor’s Business Daily noted some comments about UiPath from BMO Capital Markets analyst Keith Backman in late January.
“On one hand, gen AI may pressure the RPA market as the competitive landscape may change especially as new rivals such as Microsoft (MSFT) have entered the RPA space,” Bachman stated. “On the other, we think gen AI can help the adoption of RPA tools as it appeals to broader audience and use cases. PATH provides some of the most secure and reliable RPA solutions.”
In December 2023, I suggested that UiPath would continue to benefit from financial services firms utilizing its RPA (robotic process automation) software to automate much of the back-office work humans currently do.
Further, a larger tech company would look to acquire it in 2024 to give that firm an RPA boost. It hasn’t happened in the first two months, but there are 10 more.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) is ARKK’s 11th-largest holding with a 2.94% weight. Its shares are down 24.0% year-to-date.
The sports-betting company may not be in Wood’s top 10, but it has captured the imagination of American sports betters. As of Q4 2023, DraftKings took 35% of the online sports betting handle in the U.S., up from 32% a year earlier. That translated into 40% of the net revenue, up 10 percentage points from a year earlier.
As a result of its strong year in 2023, the company expects 2024 revenue of $4.78 billion with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $460 million. That’s considerably higher than in 2023.
On Feb. 15, DraftKings announced it would acquire Jackpocket for $750 million, with 55% in cash and 45% in DKNG stock. The acquisition enables the company to enter into the attractive U.S. lottery market. In 2023, the U.S. lottery industry had $108 billion in sales. By 2028, that’s expected to hit $138 billion. Jackpocket’s revenue in 2024 is predicted to grow by 70%, 15x the industry’s projected growth for the year.
Those lottery customers who used DraftKings for online sports betting and iGaming spent 53% more in gross gaming revenue than those DraftKing customers who didn’t use lottery products from Jackpocket.
The synergies make 2024 an even more memorable year than was already expected. I continue to expect big things from DraftKings.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
