Cathie Wood stocks were doing quite well for a good chunk of the year. Only in mid-September did Wood’s year-to-date performance for her flagship ARK Innovation ETF (NYSEARCA:ARKK) fall below that of the Invesco QQQ Trust (NASDAQ:QQQ).
Through October 4, ARKK is up 26.49% in 2023, nearly 10 percentage points behind the QQQ. As recently as July 31, ARKK was 20 percentage points ahead. Wood’s fund has gotten hammered in the past month, losing 3x as much as QQQ.
Unfortunately, ARKK’s one-year and five-year comparisons with QQQ are even worse. Never fear; it’s always darkest before dawn, and I believe that these Cathie Wood stocks are ready to roar in 2024. To make it interesting, they must be up at least 25% in 2023. Who would have thought the market’s most celebrated portfolio manager three years ago would now be an underdog? Those who understand that active management isn’t easy.
Roku (ROKU)
I am thrilled to see Roku (NASDAQ:ROKU) rallying in 2023. Up 73% YTD, it’s now in positive territory over the past five years, a sign it might be on the way to triple digits in 2024.
ROKU is ARKK’s third-largest holding with an 8.08% weighting. A year ago in August, Roku reported disappointing quarterly results, and the stock tumbled 23% on the news. ARKK bought another 373,857 shares of the video streaming platform provider. ROKU had a 6.39% weighting at the time, so it’s gained 169 basis points over the past year.
There is no question that its shares bottomed at the end of 2022. If you bought early in 2023, I commend your conviction.
On September 6, the company announced that it would lay off 10% of its 3,000-person workforce to cut costs. Over the past year, it’s made three cuts, eliminating 700 jobs. It’s never fun when companies have to cut headcount. Investors, however, love when these things happen, as it can mean more money in their packets. Its shares rose more than 14% on the news. Additionally, Roku raised its revenue and adjusted EBITDA guidance for Q3 2023.
At the time, Wells Fargo analyst Steve Cahall, who rates it Equal Weight with an $84 target, felt the higher guidance was a positive for EBITDA profit further out. “We think implied adjusted EBITDA could exceed $300 million for ’24E [versus] Wall Street’s $64 million estimate,” Yahoo News reported his comments to clients.
Profitability, here we come.
UiPath (PATH)
UiPath (NYSE:PATH) is up nearly 36% YTD, neck and neck with QQQ. However, it’s lost 78% of its value over the past five years.
So, why is it up in 2023? That’s a matter of debate. Some believe investors have bid up its share price, hoping its Robotics Process Automation (RPA) software will benefit or be hurt by artificial intelligence (AI) applications.
“We have yet to see if Generative AI will drive truly inimitable differentiation for UiPath in a very competitive and disruptive automation software landscape,” Barron’s reported D.A. Davidson analyst Gil Luria’s comments to clients on September 6 after Q2 2024 results were released.
UiPath said its annual recurring revenue (ARR) as of July 31 was $1.31 billion, 25% higher than a year ago. Further, its dollar-based net retention rate was 121%, which means clients around for more than a year spent 21% more than they did in the previous 12 months.
The biggest thing I like about the first half of fiscal 2024 is that its non-GAAP adjusted free cash flow was $119.3 million, 255% higher than -$77.1 million in the first half of 2023.
UiPath is Wood’s fifth-largest holding with a 6.72% weighting.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) is ARKK’s eighth-largest holding with a 4.09% weighting. DKNG stock has the best performance of the trio in 2023. It’s up more than 159%, nearly 200% over the past five years.
In late September, JPMorgan analyst Joseph Greff upgraded DraftKings stock to Overweight from neutral, with a 42% increase in its target price to $37, 29% higher than where it’s currently trading. The analyst believes the company’s customer acquisition costs will fall dramatically as its brand gains traction nationally, resulting in higher cash flow, etc. “We think DKNG has a strong moat (product, scale, brand) that should allow it to compete against new entrants like PENN’s ESPNBet…and Fanatics, much like it competed against Caesars,” MarketWatch reported the analyst’s comments.
Of the 34 analysts covering the online sports betting company’s stock, 23 rate it a Buy. I consider it a positive sign when more than 50% of analysts rate a stock a Buy. Their median target price is $37, right on Greff’s target.
Of the three Cathie Wood stocks, I would be most comfortable holding DraftKings because online sports betting is here to stay, followed by Roku and UiPath. In Wood’s books, all three of them are keepers.
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.
