What Is Cathie Wood Buying Now?

What Is Cathie Wood Buying Now? Cathie Wood, head of the ARK Invest family of funds, became a household name in the investment world as the pandemic caused small-cap tech startups to massively outperform legacy enterprises in 2020 and 2021.

 

The tech selloff, however, hasn’t stopped Wood from being bullish on the future of small, innovative tech companies. She’s buying three companies now that should be on your radar:

 

Given her love of sold-off tech stocks, Roblox (NYSE:RBLX) is a natural fit for Wood.

 

ARK Invest recently scooped up another 134,250 shares of the embattled video gaming company, worth about $11.1 million.

 

This purchase was the latest in a string of Roblox acquisitions the company has made as the stock price has plummeted. To date, Roblox has sold off by more than 60 percent this year.

While Wood is famously bullish on high-growth tech stocks, other investors may want to weigh their risks when it comes to Roblox.

 

The stock currently trades at $30.89, and the median target price over the next 12 months is $34. This would give Roblox an upside of only 8.2 percent. The lowest price target, by contrast, is $21, a further drop of 33.1 percent.

 

Analyst forecasts, therefore, suggest that Roblox could be an asymmetrical risk that is weighted toward losses rather than gains.

 

That isn’t to say, however, that there isn’t an argument for Roblox as well.

 

To begin with, the company is a large player in the emerging metaverse industry. This alone gives it prospects for high growth as virtual reality technology comes into its own over the next several years.

 

The company also detailed healthy user and engagement growth in its Q1 report. Daily users on the Roblox platform rose 28 percent year-over-year, with total hours of user engagement up 22 percent.

 

Overall, Roblox is a long-term play on metaverse technology. If the company successfully capitalizes on this technology, its steady growth and the metaverse industry itself could propel the stock to much higher levels.

 

However, there are also substantial risks associated both with metaverse investing and with Roblox itself. Roblox could be a huge winner, but it’s a fairly speculative investment that’s best suited to highly risk-tolerant investors who are deeply bullish on the metaverse.

 

Streaming device maker Roku (NYSE:ROKU) is among the stocks that tumbled massively following the shocking report that Netflix was hemorrhaging subscribers earlier this year. So far, the stock has sold off by more than 55 percent YTD.

 

Unsurprisingly, Wood has jumped on this selloff, aggressively buying up Roku shares. In fact, Roku has surpassed Tesla as ARK Innovation’s top holding, with over $700 million of the fund’s capital invested in the stock.

 

The primary appeal of Roku, interestingly enough, is that it can actually benefit from subscriber churn at large streaming services like Netflix.

 

Because Roku derives its revenue from ads, streaming services will likely have to generate revenue for Roku as they compete for subscribers using the company’s smart TV platform.

 

As a result, Roku is likely getting caught up in a selloff of streaming-adjacent companies when it stands to profit from the increased competition among them.

Near-term price targets are also more favorable for Roku than for Roblox. The median analyst forecast puts Roku at $155 over the next 12 months, a 57 percent jump from the current price of $98.74. At the lowest price target of $80, the stock would lose 19 percent.

 

The company’s Q1 reporting seems to support a more bullish view on the stock. Revenue rose by 28 percent year-over-year, and gross profit was up 12 percent.

 

Average revenue per user rose 34 percent, and user growth continued steadily. All told, the Q1 report suggested that Roku has seen very little detrimental impact from the generally negative streaming environment.

 

Roku appears to have a much more compelling investment argument behind it than Roblox. While Roblox is a speculative play on an emerging technology, Roku offers a more down-to-earth thesis on the role of advertising in the streaming world.

 

Although both have their risks and possible rewards, Roku appears to be a somewhat more conservative play on high-growth tech potential.

 

UiPath (NYSE:PATH) is a software company specializing in automation and robotics. The company, which has lost nearly 50 percent of its value YTD, was the focus on a major ARK buy in April.

 

The fund purchased some 800,000 shares of UiPath, valued at just under $20 million. This followed a March purchase of 1.94 million shares. Like Roku and Roblox, UiPath has been sold off a great deal this year, causing it to lose almost 50 percent of its value YTD.

 

On a 12-month horizon, UiPath’s potential is limited. The median Path target price is $25, just 13.9 percent above the most recent price of $21.94. The lowest price target, on the other hand, would send the stock plummeting a further 31.6 percent to $15.

There are, however, definitely aspects of UiPath for investors to like. In the most recent quarter, earnings beat the consensus estimate by $0.03.

 

While this still registered a loss for UiPath, it shows that the company is ahead of anticipated performance. UiPath also does business on a subscription model, which should make for a fairly predictable stream of recurring revenue as the company continues to expand.

 

The company is highly innovative, deploying unique technology to help smaller businesses automate time-consuming tasks. This is a niche market that has been underdeveloped, as many AI firms focus on larger, enterprise-scale clients. Being the first major player in this space gives UiPath at least a bit of a moat.

 

UiPath’s challenges stem largely from slowing growth. In part, this can be attributed to the nearly complete lockout of the Russian market, where the company did considerable business. The problem of slowing growth isn’t minor, but it could be overcome as the company continues to establish and market itself. UiPath has serious potential, but investors could have a long wait before seeing it perform to its full capabilities.

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