Not only is Cathie Woods’ ETF, the ARK Innovation ETF (NYSEARCA:ARKK), way underperforming the S&P 500, but it has actually lost ground in 2021. So it’s fair to say that, by and large, Cathie Wood stocks haven’t done very well in 2021.
As of Oct. 26, the fund has dropped by around 1% year-to-date. In some ways, Woods’ underperformance is understandable. That’s because it’s been a very tough year for tech stocks in general and highly innovative tech stocks in particular.
Among the reasons for their struggles are fears of interest rate increases and stagflation, the chip shortage, and more intense worries about valuations this year than in 2020.
Still, some of Wood’s favorite stocks have been dramatically overvalued, and she has chosen the shares of several companies that are facing extremely tough competition and/or highly uncertain futures. To Wood’s credit, she’s gotten rid of two of her worst picks from earlier in the year — Workhorse (NASDAQ:WKHS) and Virgin Galactic (NYSE:SPCE) — that I panned in previous columns.
But given the fund manager’s poor performance this year and the weak fundamentals of some of her picks, I would definitely recommend selling several Cathie Wood stocks on any strength in the coming weeks.
Here are four Cathie Wood stocks that investors should look to unload before the end of the year:
Cathie Wood Stocks to Sell: Palantir (PLTR)
I’ve long been negative on PLTR stock. Among the reasons for my bearishness have been the company’s very high valuation, lack of profitability and largely unidentified — and possibly nonexistent — competitive advantages.
Indeed, as I pointed out in a column back in March, Wood basically admitted in a February interview on CNBC that she herself did not know what, if any, competitive advantages, the company has.
And in an Oct. 8 column, I noted that “the U.K.’s Department of Health and Social Care decided to end its data-sharing agreement with Palantir,” and reported that “America’s Immigrations and Customs Enforcement is trying to eliminate Falcon, a surveillance tool developed by Palantir, and replace it with a product called RAVEn. ”
In addition to providing further evidence that Palantir’s “secret sauce” is not so magical, the news suggests that the company could be in danger of starting to lose a significant percentage of its government contracts.
Also worth noting is that the company’s second-quarter earnings per share came in at negative 7 cents, and that its Q1 EPS was also negative 7 cents.
Despite all of these issues, the trailing price-sales ratio of PLTR stock is still a gargantuan 36.
Skillz (SKLZ)
In a July 13 article, I noted that the company’s audiences are fairly anemic and growing slowly. As a result, the SKLZ stock bulls who argue that the company is poised to benefit from strong ad revenue are misguided.
What’s more, I’ve shown, using statistics from Amazon’s (NASDAQ:AMZN) Twitch, that esports in general are not very popular, putting a fairly low ceiling on Skillz’s outlook.
Like Palantir, Skillz is unprofitable and has a gigantic valuation. Not only that, but its profitability declined — in a big way — in Q2. Specifically, its net loss soared to nearly $80 million, versus $20.2 million during the same period a year earlier.
While it’s true that Skillz’s revenue climbed 52% YOY to $89.5 million, the fact that its loss roughly quadrupled YOY and was nearly as high as its revenue, bodes badly for SKLZ stock. Also important is that, at well under $100 million, the company’s revenue is still rather low, providing evidence for my theory about esports’ low popularity.
Cathie Wood Stocks to Sell: Coinbase (COIN)
The cryptocurrency exchange is one of the riskiest, big-name stocks in the market.
There are multiple reasons to expect the crypto craze to collapse in the not-too-distant future, taking COIN stock down with it.
For one thing, very few if any people are actually using the cryptos for anything but trading. In history, a number of commodities that had little or no utility, but tremendous trading volumes, tumbled tremendously. Two of the most well-known examples are Holland’s tulips in the 16th century and subprime mortgages in the 2007-2008 era.
Then, there’s the hostility that U.S. government regulators have shown towards cryptos, with Treasury Secretary Janet Yellen leading the charge. And banks, which traditionally have a great deal of leverage over the U.S. government, make a meaningful amount of money from the current currency system.
Given these points, the fact that Congress has already targeted the sector, and China’s decision to make cryptos illegal, I have to agree with JPMorgan (NYSE:JPM) CEO Jamie Dimon, who recently asserted that “regulators are going to regulate the hell out of [cryptocurrency].”
Finally, the elimination of the lion’s share of federal stimulus in September seems to have taken a great deal of air out of the crypto craze. Indeed, with the notable exception of Shiba Inu (CCC:SHIB-USD), we haven’t seen truly exponential gains for the biggest crypto names in the last several weeks.
Trading with a forward price-earnings ratio of 42, COIN stock isn’t trading at a very high valuation. But given the possible collapse of crypto, the shares, as I stated earlier, are extremely risky.
Indeed, since most cryptos have stopped jumping, they’re likely to tumble. That’s because their allure as a “get-rich-quick” investment will have disappeared.
Teladoc (TDOC)
In December 2020, I warned that the valuation of TDOC stock was excessive, given the tough competition that it was facing and the low barriers of entry of its business.
Since then, many others have realized that the company is indeed in a cutthroat sector. That realization is one of the factors that has led to a pullback of over 50% by the shares since February highs.
But despite the stock’s retreat and the company’s intense competition, TDOC stock still trades at a fairly hefty trailing price-sales ratio of 11.
On Aug. 2, research firm Argus cut its rating on Teladoc to “hold” from “buy,” citing the fact that its costs are climbing more quickly than its revenue. The firm also noted that the company has to cope with increased competition, and it expects Teladoc to report operating losses for at least another year and a half.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Remark. You can reach him on StockTwits at @larryramer.
