Kelvin Hill April 4, 2024
Introduction
Cathie Wood is the lead portfolio manager at Ark Invest, an asset management firm that runs a series of thematic index funds focused on disruptive technologies, everything from artificial intelligence and robotics to blockchain and DNA sequencing.
Wood ranked among Wall Street’s most successful stock pickers in 2020, the year her flagship Ark Innovation ETF soared 149%, trouncing the 16% return in the S&P 500 (SNPINDEX: ^GSPC).
To be fair, she lost some of that credibility when the fund badly underperformed over the next two years, but investors may not realize Ark has regained some momentum. The Innovation ETF has advanced 60% since January 2023, topping the 36% gain in the S&P 500.
With that in mind, Ark had 14.4% of its portfolio spread across two stocks as of March: Tesla (NASDAQ: TSLA) accounted for 6.5% of invested assets, and Coinbase Global (NASDAQ: COIN) accounted for 7.9%. That position sizing suggests that Wood and her team have a great deal of confidence in both companies.
Are the stocks worth buying?
Table of Contents
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 the company delivered 1.8 million vehicles, up 38% from the prior year.
The bad new is the price cuts stunted growth and dragged on margins. Revenue rose just 3% to $25.1 billion in the fourth quarter, and non-GAAP net income dropped 39% to $2.5 billion.
Things will probably get worse before they get better. Management warned that vehicle volume would grow more slowly as it prepares to launch a next-generation (low-cost) vehicle in 2025. That means increased spending could hinder profitability to an even greater degree 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 led the market in battery electric vehicle sales, and the company actually gained a percentage point of market share last year. That means Tesla is already positioned to benefit as interest rates fall and demand rebounds. But its next-generation vehicle is rumored to start at $25,000, which could expand its addressable market tenfold, according to Ark Invest.
2. Coinbase Global
Coinbase has been exceptionally volatile in recent years. It reported four quarters of triple-digit sales growth in 2021 as investors bid the cryptocurrency market into a bubble. It then reported six quarters of double-digit revenue declines as the collapse of FTX and several other bankruptcies rattled the cryptocurrency industry.
But revenue returned to growth in the third quarter of 2023, and accelerated substantially in the fourth quarter amid a resurgence in the market.
Specifically, revenue increased 52% to $954 million in the fourth quarter, driven by especially strong growth in transaction revenue, which is tied to cryptocurrency prices and trading 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.
