Stocks that Cathie Wood bought during the dip
Wood’s flagship fund, Ark Innovation, slid 4.4 percent on Monday alongside the broader market.
The ETF is now down more than 6 percent in 2021 and off by nearly 27 percent from its most recent high. However, Wood said that back in February, she expected a 15 percent compound annual rate of return from her strategies, But after the recent fall in prices, she envisions that number rising to between 25 percent and 30 percent .
Wood took advantage of the weakness in some of her fund’s biggest losers. Here’s what she purchased in Ark Innovation on Monday.
Coinbase, Zoom Video Communications, UiPath and Robinhood were Ark Innovation’s largest purchases on Monday, signaling these names could be some of Wood’s high-conviction picks.
The ETF has already consolidated in 2021, compared with 2020, due to a rotation to value stocks from growth names. Wood said this year her fund contains the equities she is most bullish on.
Ark Innovation purchased a position worth roughly $15.8 million in Coinbase, $15.3 million in Zoom Video Communications, $14.8 million of UiPath and about $14 million of stock trading company Robinhood, based on closing prices Monday.
Wood also snapped up about $13.8 million of Roku shares, $10.5 million of Invitae, $4.7 million of Signify Health and $4.2 million of PagerDuty.
The flagship fund also purchased roughly $6.6 million shares of Ginkgo Bioworks, a synthetic biotech company that recently went public by way of a special purchase acquisition company. Cell programming touches several industries ranging from mRNA vaccines to animal-free protein to renewable plastics.
Notably missing from the list is Wood’s largest holding Tesla, which fell 3.9 percent on Monday. Wood explained last week that she has been trimming her position in the electric auto maker for cash to purchase more shares of the next big winners.
Wood said the Tesla sale was simply a “tactical move” to make room for more shares of UiPath.
Ark Innovation had rebounded about 1.5 percent on Tuesday.
Simon Property Group (NYSE: SPG) gets updated
Simon’s prospects looked bleak in 2020, as mall foot traffic plummeted due to the spread of Covid-19 and retailers began to focus more on e-commerce. The feared wave of retailer bankruptcies did not materialize, and Simon made several investments in its real estate clients, allowing retailers to benefit from the digital sales boom as well.
“SPG’s equity infusions have assisted these troubled retailers in avoiding bankruptcy filings, preventing empty storefronts at SPG malls, and providing SPG with exposure to retailer e-commerce sites, thereby diversifying the company beyond physical retail,” according to the note.
Disney stock is still one of the best stocks to buy now
“Disney lost $14 billion in market capitalization on Tuesday, almost entirely as a result of CEO Bob Chapek’s business update commentary. That equates to $5 million for each Disney+Hotstar subscriber removed from our model, subscribers who generate $0.45/mo in subscription revenue – we removed $4 million in revenue from F4Q21 and $16 million in revenue from FY22,” according to the note.
“We believe it is likely that Disney+Hotstar’s subscriber level will actually fall in F4Q (we moved from +1m net adds to -2m),” the note said. “This means that core Disney+ subscribers should be reasonably close to our 5m net add estimate (remained unchanged), and certainly in line-to-ahead of the 2.5m/qtr pace of the previous two quarters.
Credit Suisse kept its outperform rating and $218 price target for Disney. This target is more than 27% higher than the stock’s closing price on Tuesday.
SoFi at buy
“We believe that SoFi’s synergistic business model, ‘Flywheel,’ will continue to drive significant user growth, product adoption, and margin expansion. SoFi has also made progress toward obtaining a bank charter, which should support attractive long-term growth, according to the note.
Jefferies forecasts double-digit annual growth for many of SoFi’s product categories, including home loan origination and personal loans, through 2025.
Furthermore, SoFi’s ownership of tech platform Galileo, which counts SoFi’s competitors among its main clients, is a “key differentiator,” according to Jefferies.
“Beyond vertical integration, the synergies between SoFi and Galileo present a unique value proposition. Consolidation between the two creates marketing efficiencies, resulting in significant cross-selling opportunities between the customer bases of both companies, as SoFi will be able to serve both B2B and B2C customers, according to the note.
Bullish on Alibaba stock (BABA)
“We still like Asian tech, and I think a fair bit of the… episode, concern, or risk premia has been priced into at least the majors there,” Nicholas Ferres, founding partner and chief investment officer at Vantage Point Asset Management, said.
Ferres stated that he likes Alibaba and Tencent, and that both stocks are currently in his basket of Asian tech picks.
Taiwan Semiconductor Manufacturing Company and Samsung Electronics of South Korea are among the others.
This year, investors in Hong Kong have been selling Chinese technology stocks as regulatory uncertainty continues to weigh heavily on the sector.
As of Tuesday’s close, Hong Kong-listed shares of Alibaba had fallen roughly 36% year to date, while Tencent had fallen roughly 20%, while the Hang Seng Tech index had fallen roughly 26% during the same period.
Aside from the regulatory uncertainty surrounding Chinese technology, Ferres cited a weak credit impulse in China — the rate of credit growth as a percentage of GDP. According to the fund manager, it is currently at a level comparable to that of 2012 and 2015.
China will not allow Evergrande to fail, which should lead to a market rebound, according to economist Ed Yardeni.
UBS has identified five global stocks that will benefit as Chinese women spend more.
According to El-Erian, the Evergrande crisis is causing investors to question whether China is still a viable investment destination.
The current slowdown in credit growth coincides with an increase in debt risks in China, with concerns that a spillover effect at indebted developer China Evergrande Group could result in a “domino effect” in the property sector.
Ferres recalled a 2015 article in The Economist titled “The Great Fall of China,” which discussed the major drop in Chinese stock markets, which made investors nervous due to the possibility of a contagion effect.
When there is “maximum concern” or “fear behavior,” it is usually “an opportunity… to begin scaling in,” he says.
Mainland After a two-day holiday on Monday and Tuesday, Chinese stocks resume trading on Wednesday. Investors will be watching for market reaction in Hong Kong, where the Hang Seng index fell more than 3% earlier this week amid fears of contagion from the Evergrande debacle.
Surging semiconductor stocks
The bank “modestly” raised its year-over-year growth forecasts for US wafer fab equipment makers by 3% in 2021 and 5% in 2022.
The following are Goldman’s buy-rated “favorite ideas” for US semiconductors:
Applied Materials is a company that manufactures solar panel components. According to results released last month, it exceeded analysts’ expectations for earnings per share and gross margins in the second quarter.
Goldman is 3.8 percent above consensus in terms of earnings per share, a key measure of a company’s performance, according to Lam Research, based in Fremont, California.
Entegris, which Goldman rates as 1.3 percent above consensus in terms of earnings per share.
Goldman has not revised its estimates for Teradyne.
According to the bank, all four companies plan to increase market share, margins, shareholder dividends, and mergers and acquisitions activity.
“While our CY2021 [calendar year 2021] earnings estimates are largely in line with Street consensus, we see room for CY2022/2023 expectations to trend higher as we progress through the rest of the year and into next year,” the analysts wrote.
Analysts also pointed out that wafer fabrication stocks are cyclical, which means their performance varies with the broader economy.
Investment bank picks
“Over the last two years, equity investors have been on a rollercoaster ride. They will have enjoyed bumper returns since the March 2020 lows,” the analysts wrote in a Sept. 16 research note. Berenberg anticipates that the economic recovery will continue into next year, along with rising bond yields and inflation, which they believe will support a “extended earnings cycle.”
The analysts also mentioned a few short-term risks, as well as the “potential for a spike in uncertainty over the next couple of months.” These risks included weaker Chinese activity, disruptions caused by Covid-19, and a reduction in central bank financial support.
With this in mind, the analysts chose what they called “whatever weather winners” — stocks with strong earnings growth expectations, strong balance sheets, and a surplus free cashflow yield, a metric investors use to assess a company’s cash generation and growth potential.
These are stocks to buy “for the time being,” according to the bank, and they include companies from Europe, the United States, and the United Kingdom.
Stocks in technology
Berenberg has referred to technology as the “ultimate whatever-the-weather winner sector” and has been overweight the sector since March 2011, following the global financial crisis.
Its picks for the United States include tech titans Facebook and Amazon, as well as computer suppliers Micron Technology, Western Digital, and Marvell Technology.
LED company Universal Display, laser manufacturer IPG Photonics, and IT firm DXC Technology are among the small to mid-sized tech firms on its list.
In Europe, it chose semiconductor suppliers ASML and Infineon, as well as semiconductor manufacturer ASM International, while in the United Kingdom, it chose software consultancy Aveva Group and used-car website Auto Trader.
According to Berenberg, more than 60% of global tech stocks have net cash on their balance sheets, with more than 40% expecting earnings per share growth in three years compared to one year. Earnings per share is a key metric used by investors to assess the performance of a stock.
Berenberg analysts like autos, energy, and retailers, which “appear to have strong near and medium term EPS growth expected.”
Ford, auto suppliers Borgwarner and Aptiv, and fashion retailer Ross Stores are among its large-cap U.S. “whatever weather winners” in these sectors. Pioneer Natural Resources and Baker Hughes are among the energy companies on its list. Lear and Autoliv are two small- to medium-sized business picks.
Analysts’ favorites in Europe include luxury group Kering, fashion retailer H&M, used-car seller Motorpoint, tire companies Michelin and Continental, and auto glass company D’Ieteren Group.
SunPower’s is a buying opportunity
Morgan also mentioned the company’s expanding commercial and industrial solutions business segments, which are based in California.
“We anticipate higher EBITDA and continuing EPS as topline growth and improved gross margins help scale operating costs and drive improved profitability,” he said.
SunPower’s stock is down about 14% for 2021, reflecting a general decline in solar and renewable energy stocks. Nonetheless, shares have increased by 115% in the last year.
SunPower shares were up 5.3 percent in early afternoon trading.