Cathie Wood Is Loading Up On These 12 Stocks

Ramish Cheema
10 min read

In This Article:

In this piece, we will take a look at the top twelve stocks that are on Cathie Wood's radar. For more stocks, head on over to Cathie Wood Is Loading Up On These 5 Stocks.

If there's one thing that can be said for certain in today's highly volatile environment, it's that 2022 has not been a good year for Cathie Wood. Ms. Wood, who heads the hedge fund Ark Investment Management, is one of the most dynamic managers you're likely to come across. Her bets focus on the highest growth stocks in the industry, which are often those companies that are disrupting the industries they are in. Whether it's 3D printing, biotechnology, or electric cars, Ms. Wood is right at the front of identifying firms that she believes are truly poised to explode.

Naturally, this aggressive approach, which can very well be categorized as being disruptive to the hedge fund world as well, has come under criticism from more conservative investors who believe that high risk companies should be balanced out with stable players. Ms. Wood is aware of this criticism. In a research paper that she wrote at the start of this month, Cathie Wood used quantitative data to hit back at the critics.

She criticized the approach of simply using the operating income (EBITDA) to value growth companies that are investing heavily in research and development. The hedge fund boss explained that purely focusing on EBITDA — just 27.8% of her Innovation ETF's holdings are EBITDA positive — is not a reliable indicator of performance since research and development ends up adding to the long term value of a firm. Ms. Wood added that for startups and early stage companies, deferred revenue, which is revenue that it will earn beyond one accounting period, is also a source of "validation" and is more important for valuation purposes than it would be if a mature company was being analyzed. To bolster her claim of R&D costs being a relevant valuation metric for Ark's investments, she quoted that for the firms that her fund has invested in, these costs are 28.6% of total revenues as opposed to 12% for the NASDAQ 100 index. Should these and some other costs be removed from the operating income, then, as opposed to the 27.8% positive EBITDA percentage shared above, the percentage of firms in the Ark Innovation fund that are profitable jumps to 84.9%.

Finally, she concluded her criticism by sharing an example of Tesla, Inc. (NASDAQ:TSLA). Ms. Wood is one of Tesla's biggest investors, and she has a whopping $1,530 price target for the company whose shares have taken a beating on the stock market this year due to what some believe is an effect of Mr. Elon Musk's Twitter tryst, with Musk himself countering by pointing out that a higher benchmark interest rate leaves little incentive for people to invest in risky stocks when they have the comfort of bonds instead. Ms. Wood shares that while Tesla's EBITDA based profitability was negative as early as 2016, it was actually positive based on her adjusted EBITDA metrics and ended up being positive in 2015, five years before the company entered the S&P 500 index.

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