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In the upcoming year, these three stocks from Cathie Wood's portfolio show the potential for replicating their notable performance
Introduction
Cathie Wood’s leading ARK Innovation ETF (NYSEARCA: ARKK) has seen a remarkable surge of over 67% as 2023 draws to a close, marking the first year of positive returns since 2020. This resurgence has piqued the interest of investors, sparking curiosity about Cathie Wood’s stock choices for the upcoming year.
Currently, ARKK manages a substantial $5.84 billion in net assets distributed across a portfolio of 35 stocks. The top 10 holdings within this portfolio contribute significantly, making up almost 62% of the overall allocation.
While some may argue that mirroring the ETF could be a prudent strategy for those interested in Wood’s top positions, the focus here is distinct. Instead of replicating the entire portfolio, the goal is to identify three specific stocks owned by Cathie Wood that are poised to be worthwhile investments in 2024.
In a recent analysis, InvestorPlace’s Alex Sirois highlighted seven Cathie Wood stocks that align with the expectation of interest rate cuts in 2024. From this selection, here are three compelling ideas drawn from Cathie Wood’s flagship fund.
ROKU
Roku (NASDAQ: ROKU) holds the position of the fourth-largest holding in ARKK, accounting for 6.89% of the portfolio. The stock has shown significant strength, with a year-to-date (YTD) increase of 120%.
Cathie Wood envisions a bullish scenario for Roku, setting a target price of $1,500 by 2026. This projection is based on anticipated metrics such as $32 billion in revenue, 1.3 billion connected TVs (CTVs) globally, and an estimated 186 million accounts, each logging 5 hours per day. With these figures, the streaming platform could potentially deliver an impressive 339.5 billion hours of content viewed annually, creating substantial advertising opportunities for brands seeking to capture a larger share of the streaming market.
Unlike focusing on individual streaming services and their ad revenue potential, Roku is viewed as a service-agnostic investment, representing a strategic bet on the sustained growth of the streaming industry.
BLOCK
Block (NYSE: SQ) holds the sixth-largest position in ARKK, making up 6.58% of the portfolio. The stock has experienced an 18% increase YTD.
BMO Capital Markets analyst Rufus Hone, who recently took over coverage of Block stock, maintains an Outperform rating. Hone’s assessment indicates that CEO Jack Dorsey’s cost-cutting measures are proving effective, leading to expectations of continued gross profit growth in 2024. While acknowledging potential execution risks in achieving 2026 targets, the analyst sees room for ‘quick wins’ in cost reduction, boosting short-term sentiment.
Since Hone’s comments on December 5, SQ shares have risen by 17.3%, reflecting investors’ agreement that Block’s margins are looking favorable heading into 2024.
DRAFTKINGS
DraftKings (NASDAQ: DKNG) ranks as the 13th-largest holding in ARKK, constituting 2.98% of the portfolio. The stock has shown remarkable growth, with a YTD increase of 210%.
Cathie Wood’s positive stance on DKNG aligns with broader analyst sentiment, as 25 out of 33 analysts covering the stock rate it as Overweight or Buy. The consensus target price of $42 reflects a 22% upside compared to its current trading value.
Despite a significant surge in shares throughout 2023, reported robust results on November 2, leading to an 18% increase in its stock. Positive indicators include improved cash flow from operating activities, a 76% rise in revenue ($2.43 billion), and a reduced adjusted EBITDA loss compared to the previous year.
The company continues to expand its presence, with mobile sports betting operations in 22 states, covering 45% of the U.S. population, and a strategic presence in Ontario, Canada, representing 40% of the country’s population. DraftKings is poised for further growth and is making strides toward achieving non-GAAP profitability.