If you’re looking for the best Cathie Wood stocks for June, you’re not going to find Nvidia (NASDAQ:NVDA) on her shortlist. This is because she thinks the chip company’s share price is overpriced.
On May 29, the star portfolio manager tweeted her thoughts on the subject:
“Since 2014, @ARKInvest has believed that Nvidia saw the AI future before most other chip companies, and now we believe it will continue to power the AI age. At 25X expected revenue for this year, however, $NVDA is priced ahead of the curve,” Wood said.
Since Wood’s off the Nvidia train at these prices, where is she putting her firm’s biggest bets now? She’s looking at software providers.
“We are looking to the software providers who are right now where Nvidia was when we first bought it,” Wood told Bloomberg TV on May 31.
As Wood said on Bloomberg TV, software-as-a-service (SaaS) providers will generate $8 in revenue for every dollar of hardware Nvidia sells.
So, without further ado, here are three software providers owned by one of Wood’s ETFs worth considering in June.
Block (SQ)
Block (NYSE:SQ) is the 6th-largest holding of the ARKK Innovation ETF (NYSEARCA:ARKK), Cathie Wood’s largest ETF with a 5.62% weighting.
The fintech was the seventh-largest holding of Ark Investment Management, Wood’s investment firm, which incorporates ARKK into its $14.6 billion in net assets reported on its March 31 13F filing.
This year has not been good for CEO Jack Dorsey or any of Block’s shareholders. Its shares are down more than 16% and up only 1.7% over the past five years. Moreover, it’s far from its all-time high, near $300 in February 2021.
In early May, the company delivered Q1 2023 results that were better than analyst expectations. Revenue was $4.99 billion, 26% higher than Q1 2022. In addition, its revenue number was $390 million higher than the consensus estimate.
On the bottom line, it reported adjusted earnings per share (EPS) of 40 cents, five cents better than the analyst estimate and 122.2% higher than Q1 2022.
Despite all its difficulties, I suspect Dorsey has more fun running Block than Twitter.
Twilio (TWLO)
Twilio (NYSE:TWLO) is under attack from activist investor Legion Partners—the Los Angeles-based small-cap asset manager to make changes to the board and possible divestitures.
The activist has met with the company six times over the past few months. Legion wants Twilio to rightsize the business. The investment manager got a bit more pull, given CEO Jeff Lawson’s supervoting shares will expire in June, reducing his pull on the company from a voting stake of nearly 22% to an economic interest of 3.6%.
However, despite the reduction of influence for Lawson, he still owns a lot more shares than Legion. I’ve never understood how a company holding $40 million of a $12.8 billion market cap can get six meetings with a company, but I digress.
Twilio, which provides communication tools for companies looking to engage their customers, has struggled recently. It continues to overpromise and underdeliver. Over the past four quarters, it has guided below analyst estimates for the next quarter. It’s just not making as much from each of its customers.
Despite this weakness, TWLO remains Ark Invest’s 11th-largest position.
PagerDuty (PD)
If you’re a value investor, PagerDuty (NYSE:PD) trades within four dollars of its 2019 IPO price of $24. Despite doing bupkus since trading near $60 in February 2021, the company’s software helps businesses ensure that their digital infrastructure remains operational.
As the ad says, “That’s priceless.”
PagerDuty is Ark Invest’s 16th-largest holding, accounting for 2.36% of its $14.6 billion in assets under management and on its 13F.
In March, the company reported its Q4 2023 results. Its annual recurring revenue (ARR) rose 26% to $410 million, with 15,244 customers and 752 paying more than $100,000 annually. In addition, it grew its $100K customers by 26.6% year-over-year to 752.
On the bottom line, it managed a non-GAAP operating profit of $3.46 million, considerably higher than its $23.05 million loss a year earlier.
“PagerDuty had another strong year where we grew revenue 32% year-over-year and achieved non-GAAP profitability a year ahead of plan,” said Jennifer Tejada, Chairperson, and CEO at PagerDuty. “In Q4 PagerDuty achieved our first-ever $100 million quarter and surpassed $400 million in annual recurring revenue.”
Eight of the 10 analysts covering PD stock rate it as Overweight or an outright Buy with a median target price of $35, 29% higher than its current price.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
