Ark Invest, founded by Cathie Wood, allocates 14% of portfolio to 2 high-growth stocks

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Ark Invest, founded by Cathie Wood, allocates 14% of portfolio to 2 high-growth stocks

Cathie Wood is the Senior Portfolio Manager at Ark Invest, an asset management firm that manages a series of thematic index funds focused on disruptive technologies, from artificial intelligence and robotics to blockchain and sequencing DNA.

Wood ranked among Wall Street’s top-performing stock pickers in 2020, the year of her flagship product Arche Innovation ETF soared 149%, surpassing the 16% return of S&P500 (INDEXSNP: ^GSPC). To be fair, it lost some of that credibility when the fund significantly underperformed over the next two years, but investors may not realize that Ark has regained some momentum. The Innovation ETF has gained 60% since January 2023, outpacing the S&P 500’s 36% gain.

With this in mind, Ark had 14.4% of its portfolio spread across two stocks in March: You’re here (NASDAQ:TSLA) represented 6.5% of invested assets, and Global Coinbase (NASDAQ:COIN) represented 7.9%. This position size suggests that Wood and his team have great confidence in both companies.

Are the stocks worth buying?

1.Tesla

Demand for electric vehicles declined last year as rising interest rates made auto loans much less attractive. Tesla responded with a series of price cuts. The good news is that the company delivered 1.8 million vehicles, an increase of 38% from the previous year. The bad news is that price cuts have slowed growth and weighed on margins. Revenue rose just 3% to $25.1 billion in the fourth quarter, and non-GAAP net profit fell 39% to $2.5 billion.

Things will probably get worse before they get better. Management has warned that vehicle volume will grow more slowly as it prepares to launch a next-generation (low-cost) vehicle in 2025. That means increased spending could hurt profitability even more this year . To quote CEO Elon Musk, “Tesla is currently between two major growth waves.” But the next wave could be monumental for the company.

Tesla has long been the market leader in battery electric vehicle sales, and the company actually gained a percentage point of market share last year. This means that Tesla is already able to benefit from falling interest rates and rebounding demand. But its next-generation vehicle is rumored to start at $25,000, which could increase its addressable market tenfold, according to Ark Invest.

Tesla also has substantial opportunities in software and services, particularly those related to fully autonomous driving (FSD) software. It has 50 times more driving data than its nearest counterpart and its Dojo supercomputer is specifically designed to train computer vision systems, giving the company an edge in autonomous driving technology.

Electric vehicle sales are expected to grow 15% annually through 2030, while the autonomous vehicle market is expected to grow 22% annually over the same period. That gives Tesla a good chance of annual sales growth in the mid-to-teens through the end of the decade, making its current valuation of 6.3 times sales seem reasonable.

As a caveat, this estimate assumes Tesla will significantly monetize its FSD platform, with both subscription sales and robotaxi services. Investors comfortable with this assumption should also feel comfortable purchasing a small position in Tesla stock today.

2. Global Coinbase

Coinbase has been exceptionally volatile in recent years. It recorded four quarters of triple-digit sales growth in 2021, as investors pushed the cryptocurrency market into a bubble. It then reported six quarters of double-digit revenue declines, FTX collapse and several other bankruptcies have shaken the cryptocurrency industry. But turnover returned to growth in the third quarter of 2023, and accelerated significantly in the fourth quarter in a context of market resurgence.

Specifically, revenue increased 52% to $954 million in the fourth quarter, driven by particularly strong growth in transaction revenue, linked to cryptocurrency prices and transaction volume. But the company also reported encouraging momentum in subscription and services revenue, which primarily includes interest earned on stablecoin reserves and other assets, as well as staking services.

Ultimately, Coinbase reported GAAP earnings of $1.04 per diluted share, compared to a loss of $2.46 per diluted share the prior year. The company’s return to profitability can be explained by a combination of strong revenue growth and disciplined expense management. During the earnings conference call, CEO Brian Armstrong said: “We reduced costs by 45% year over year and were able to ship products faster with a smaller team. »

Coinbase has some tailwinds at its back. The company operates the largest cryptocurrency exchange in the United States as measured by spot trading volume. Hoping to achieve similar success internationally, Coinbase launched commercial operations in Brazil and Canada last year and obtained licenses in France, Singapore and Spain.

The company also launched its Coinbase International Exchange in May, enabling derivatives trading for non-US institutions, and expanded its offerings to include futures trading for non-US retail investors in October. Likewise, the company launched Coinbase Financial Markets in November, bringing derivatives trading to US retail investors. These services could shake things up, as derivatives accounted for 75% of all cryptocurrency trading volume in 2023.

Looking ahead, Wall Street expects Coinbase to grow sales by 10% annually over the next five years. This consensus estimate makes its current valuation of 21.7 times sales quite expensive. Personally, I would hold off on this stock until Coinbase proves it can grow revenue faster than 10% per year, or until the valuation multiple seems more reasonable.

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Trevor Jennevine holds positions at Tesla. The Motley Fool holds positions and recommends Coinbase Global and Tesla. The Motley Fool has a disclosure policy.

Cathie Wood’s Ark Invest has 14% of its portfolio invested in 2 growth stocks was originally published by The Motley Fool

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