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 large movie theatre filled with people enjoying a film streaming on a smart TV.
Roku, Inc. (NASDAQ:ROKU) is a new age consumer electronics and media company that seeks to leverage the growth in online streaming. It sells hardware that enables users to use its platform to stream television content. As a result, central to Roku, Inc. (NASDAQ:ROKU)'s story is the ability to make money from its platform. For the streaming media industry, this means that a handful of avenues are available to make money. Apart from recurring subscription fees, central to Roku, Inc. (NASDAQ:ROKU)'s success is a growth in the shift to streaming from traditional televisions. The greater this shift is, and the better deals that it can strike with advertisers, the more money Roku, Inc. (NASDAQ:ROKU) can make and lead to juicy gains for investors.
Roku, Inc. (NASDAQ:ROKU) is another classic Cathie Wood long term play. Her firm first bought the shares in 2019 according to Insider Monkey's data when it acquired a $7 million stake. Since then, the stake has grown by more than 10x. O’keefe Stevens Advisory mentioned the firm in its Q1 2024 investor letter where it shared:
ROKU – An idea that would have seemed unthinkable just a few years back when low P/E or low multiple meant the stock was cheap. Roku is free-cash-flow positive, EBITDA breakeven, and GAAP Net Income unprofitable. Historically, investors tend to shy away from unprofitable businesses. Deeming them too risky. Roku has a $2B net cash position and is reinvesting in the business, grabbing Connected TV market share. Geographic expansion takes time and capital. They have a dominant share and have many tailwinds. Walmart's acquisition of Vizio adds to the already heightened uncertainty. We can't remember seeing a company with such "negative" sell-side coverage. 9 buys, 10 holds, and 4 sells. Nearly all reports discuss weighting for clarity, which is why the opportunity exists. Wells Fargo has the lowest price target at $45, or 26% downside. We see a reasonable case for a $100 stock in the near term and long term, owning a compounder with an attractive business model, secular tailwinds, and dominant market share that can translate into a desirable return over the next several years.
Overall ROKU ranks 2nd 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 Woodto see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of ROKU 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 ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
