Cathie Wood Focuses On Top Holdings In 4th Quarter

Summary

• Wood boosted Zoom and Roku during the quarter.
• She reduced her positions in Tesla, Zillow and Unity Software.

Catherine Wood (Trades, Portfolio) disclosed her firm’s fourth-quarter 2021 portfolio last week.

Wood, who is the founder, chief investment officer and CEO of New York-based ARK Investment Managment, has made a name for herself through investing in “disruptive innovation” stocks. Implementing an iterative process that combines top-down and bottom-up research, ARK Investment seeks to invest in companies that may benefit from cross-sector innovations like artificial intelligence, robotics, energy storage, DNA sequencing and blockchain technology.

The guru entered 85 new positions during the three months ended Dec. 31, sold out of 22 stocks and added to or trimmed a number of other existing investments. Her most notable trades included increased bets on Zoom Video Communications Inc. (ZM, Financial) and Roku Inc. (ROKU, Financial) and reductions of the Tesla Inc. (TSLA, Financial), Zillow Group Inc. (Z, Financial) and Unity Software Inc. (U, Financial) stakes.

Zoom Video Communications

The investor boosted the Zoom Video Communications (ZM, Financial) stake by 56.06%, buying 2.5 million shares. The transaction had an impact of 1.38% on the equity portfolio. The stock traded for an average price of $233.56 per share during the quarter.

Wood now holds 6.8 million shares total, accounting for 3.83% of the equity portfolio. As the fifth-largest holding, GuruFocus estimates she has lost 53.7% on the investment so far.

The San Jose, California-based software company, which provides video conferencing and online chat services, has a $44.73 billion market cap; its shares were trading around $150.79 on Monday with a price-earnings ratio of 39.91, a price-book ratio of 8.74 and a price-sales ratio of 11.68.

The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past performance and future earnings projections.

GuruFocus rated Zoom’s financial strength 8 out of 10. In addition to a comfortable level of interest coverage, the company is supported by a robust Altman Z-Score of 16 that indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability did not fare as well, scoring a 3 out of 10 rating despite having margins and returns on equity, assets and capital that outperform a majority of competitors. Zoom also has a high Piotroski F-Score of 7 out of 9, meaning its operations are healthy.

Of the gurus invested in Zoom, Baillie Gifford (Trades, Portfolio) has the largest stake with 2.63% of its outstanding shares. Wood is second with a 2.31% stake. Chase Coleman (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Philippe Laffont (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio) also have significant positions in the stock.

Roku

The guru upped her stake in Roku (ROKU, Financial) by 27.35%, buying 1.3 million shares. The transaction had an impact of 0.89% on the equity portfolio. Shares traded for an average price of $267.90 each during the quarter.

Wood now holds 6.03 million shares in total, which represent her third-largest holding with a weight of 4.16% in the equity portfolio. GuruFocus data shows she has lost an estimated 0.11% on the investment.

Headquartered in San Jose, California, the company, which is known for its streaming services, has a market cap of $21.64 billion; its shares were trading around $164.05 on Monday with a price-earnings ratio of 79.32, a price-book ratio of 8.05 and a price-sales ratio of 8.71.

According to the GF Value Line, the stock is a possible value trap. As a result, investors should do thorough research before making a decision.

Roku’s financial strength was rated 7 out of 10, driven by a comfortable level of interest coverage as well as a high Altman Z-Score of 11.48. While assets are building up at a faster rate than revenue is growing, suggesting inefficiency, value is being created since the ROIC exceeds the WACC.

The company’s profitability scored a 3 out of 10 rating despite having an expanding operating margin and strong returns that top a majority of industry peers. Roku also has a high Piotroski F-Score of 7, but revenue per share has declined in recent years.

With a 4.49% stake, Wood is Roku’s largest guru shareholder. Baillie Gifford (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Simons’ firm, Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also own the stock.

Tesla

Wood curbed the Tesla (TSLA, Financial) stake by 51.24%, selling 2.03 million shares. The transaction had an impact of -3.77% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $1,012.35.

The guru now holds 1.9 million shares, making it her largest holding with a weight of 6.16% in the equity portfolio. She has gained an estimated 156.88% on the investment so far according to GuruFocus.

The well-known electric vehicle manufacturer, which recently moved its headquarters from California to Texas, has a $923.32 billion market cap; its shares were trading around $917.21 on Monday with a price-earnings ratio of 297.53, a price-book ratio of 34.12 and a price-sales ratio of 22.2.

Based on the GF Value Line, the stock appears to be significantly overvalued currently.

GuruFocus rated Tesla’s financial strength 6 out of 10 on the back of adequate interest coverage and a robust Altman Z-Score of 18.2 that indicates it is in good standing. The ROIC, however, is being eclipsed by the WACC, meaning the company is struggling to create value as it grows.

The company’s profitability scored a 3 out of 10 rating despite having strong margins and returns that outperform over half of its competitors. Tesla also has a high Piotroski F-Score of 7 and a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Baillie Gifford (Trades, Portfolio) has the largest stake in Tesla with 1.08% of outstanding shares. Other gurus with significant holdings include Ron Baron (Trades, Portfolio), PRIMCEAP Management, Spiros Segalas (Trades, Portfolio) and Laffont.

Zillow Group

With an impact of -2.17% on the equity portfolio, the guru slashed the Zillow Group (Z, Financial) position by 90.89%, selling 10.3 million shares. The stock traded for an average price of $71.41 per share during the quarter.

Holding 1.03 million shares total, the stake accounts for 0.20%of Wood’s equity portfolio. GuruFocus estimates she has lost 33.40% on the investment since establishing it in the second quarter of 2018.

The Seattle-based company, which operates an online real estate marketplace, has a market cap of $12.71 billion; its shares were trading around $50.05 on Monday with a forward price-earnings ratio of 37.33, a price-book ratio of 2.19 and a price-sales ratio of 2.49.

The GF Value Line warns the stock is a potential value trap, so investors should do thorough research before making a decision.

Zillow’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $4.6 billion in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 2.22 shows the company is under some pressure since it has recorded losses in operating income in recent years.

The company’s profitability fared even worse with a 3 out of 10 rating, weighed down by negative margins and returns that underperform over half of its industry peers. Zillow also has a low Piotroski F-Score of 3, indicating that operations are in poor shape, and a one-star predictability rank.

Of the gurus invested in Zillow, Baillie Gifford (Trades, Portfolio) has the largest stake with 4.04% of outstanding shares. Laffont, Frank Sands (Trades, Portfolio), Baron, Cohen, Ainslie and First Pacific Advisors (Trades, Portfolio) also own the stock.

Unity Software

Impacting the equity portfolio by -1.26%, Wood reduced the Unity Software (U, Financial) holding by 34.85%, selling 4.15 million shares. During the quarter, shares traded for an average price of $153.56 each.

She now holds 7.76 million shares. With a weight of 3.35%, it is the seventh-largest position in her equity portfolio. GuruFocus data shows Wood has gained approximately 7.19% on the investment so far.

The company headquartered in San Francisco, which operates a platform for creating interactive, real-time 3-D content, has a $30.27 billion market cap; its shares were trading around $103.36 on Monday with a a price-book ratio of 15.04 and a price-sales ratio of 28.46.

Since its public debut in September of 2020, the stock has climbed over 50%.

Unity Software’s financial strength was rated 7 out of 10 on the back of a robust Altman Z-Score of 23.07 and debt-related ratios that are outperforming over half of other players in the industry.

The company is being weighed down by negative margins and returns that underperform a majority of its competitors.

Wood has the largest stake in Unity Software with 2.65% of its outstanding shares. PRIMECAP, Jones and Greenblatt also have positions in the stock.

Additional trades and portfolio composition

Other top trades made during the quarter included reductions in Coinbase Global Inc. (COIN, Financial) and Shopify Inc. (SHOP, Financial) as well as boosts to Robinhood Markets Inc. (HOOD, Financial), Teladoc Health Inc. (TDOC, Financial) and Twilio Inc. (TWLO, Financial).

Wood’s $33.07 billion equity portfolio, which consists of 363 stocks, is most heavily invested in the health care and technology sectors.

After a blowout year in 2020, the ARK Innovation ETF, the firm’s flagship fund, returned -23.36% in 2021, severely underperforming the S&P 500’s 28.7% return.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.