If you’re interested in investing in Cathie Wood stocks, you might want to overlook the fact that the star portfolio manager has destroyed a considerable amount of wealth over the past decade.
According to a report from Morningstar, the head of Ark Invest has destroyed an estimated $14.3 billion in the past 10 years, with the flagship, ARK Innovation ETF (NYSEARCA:ARKK), topping the wealth destruction at $7.1 billion. In 2024, ARKK is down more than 6%; over the past year, it’s lost nearly 3% compared to a 26.3% gain for the Nasdaq 100.
“These funds managed to lose value for shareholders even during a generally bullish market,” the Business Insider reported Morningstar analyst Amy Arnott’s comments.
Contrarian investors might want to consider Cathie Wood stocks that are top positions within ARKK, the worst value destructor of the manager’s six actively managed ETFs.
If that’s you, here are the three stocks I’d consider.
Roku (ROKU)
Roku (NASDAQ:ROKU) is one of the largest holdings of ARKK with an 8.98% weight. It acquired another 245,896 shares of the streaming platform in June.
While Roku’s shares have performed poorly over the past five years, down 40%, they’re up more than 20% in the past month. The company reports its Q2 2024 results on July 25. Investors could be expecting positive results.
In Q1 2024, the streaming households were 81.6 million, 14% higher year-over-year and 2.0% higher on a sequential basis from Q4 2023. Streaming hours in the first quarter were 30.8 billion, 23% higher than a year earlier and 5.8% higher than in the previous quarter.
Any time you get those two numbers growing, you’ve conquered half the battle.
As a result, its trailing 12-month (TTM) free cash flow in Q1 2024 was $426.8 million, up from $175.9 million in Q4 2023 and negative free cash flow of $448.1 million in Q1 2023. It had three consecutive quarters of positive TTM free cash flow, growing from $101 million to $176 million to $427 million in the latest quarter.
Its pathway to profitability is almost there.
Block (SQ)
Block (NYSE:SQ) is the fourth-largest holding of ARKK with a weight of 5.75%. The fintech’s stock is flat in 2024, down considerably from its August 2021 highs over $275.
The company reports its Q2 2024 results on August 1. While its Cash App business continues to experience good growth, its Square merchant business is struggling a bit.
Cash App accounts for approximately 60% of the company’s gross profit. Some would argue that the app’s 57 million monthly active users are peaking because wealthier individuals aren’t going to use the platform for their financial services needs, opting for traditional banks with greater products and services.
CEO Jack Dorsey took over the Square business in 2023. With its point-of-sale business facing increased competition, it acquired Afterpay, a buy now-pay later business, in 2022. That will help Square secure more merchant revenue through its payment plans.
In the first quarter, its gross profit was $2.09 billion, 22% higher than Q1 2023 and better than the analyst estimate of $2.03 billion. At the same time, it expects Q2 2024 EBITDA of $680 million, $32 million higher than Wall Street’s consensus estimate.
Of the 45 analysts covering its stock, 33 rated it a Buy, with a target price of $93, considerably higher than where it’s currently trading.
The last time it traded above $100 was April 2022. It could get there in 2025.
Palantir Technologies (PLTR)
Palantir Technologies (NYSE:PLTR) is the eighth-largest holding of ARKK with a weight of 3.79%. Its shares are up 66% in 2024.
InvestorPlace’s Samuel O’Brient recently discussed how Wedbush Securities analyst Dan Ives thinks Palantir will be a winner in the upcoming Q2 earnings season. The analyst believes that Q2 tech earnings will be good and should push tech stocks 15% higher over the remainder of the year.
Ives pointed out that two indicators of earnings success — cloud deployments and enterprise AI spending — are ahead of analyst expectations heading into earnings season, which should be good for PLTR stock. All eyes will be on Palantir’s AIP (Artificial Intelligence Platform) growth when it releases Q2 2024 earnings on Aug. 5.
Wall Street expects Palantir to grow sales by 22% in the second quarter with a 60% increase in earnings per share to eight cents.
Although it trades at a high 28.3x sales, the addition of AIP to its data analytics platforms has done wonders for its revenue diversification. It also doesn’t hurt that AI is the biggest trend in technology at the moment.
I continue to like PLTR stock and so too does Cathie Wood.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.