Investors in individual stocks rarely pay much attention to exchange-traded funds (ETFs). Most ETFs passively track major indexes like the S&P 500, making them useful for those who are content with matching the market rather than beating it.
Cathie Wood, however, has turned the ETF world upside down. She runs the popular ARK Invest family of actively managed ETFs, and one of the benefits that individual investors have is getting to see Wood’s trades within a day after she makes them.
Many of Wood’s top picks have gotten hammered in recent months, but that hasn’t changed the investing strategy that has served her so well in 2020. Below, we’ll look at three stocks, in particular, that Wood is buying now as she bets on a rebound for the innovative companies she favors.
Etsy (NASDAQ: ETSY) was a huge growth story in 2020, with shares of the e-commerce marketplace for handcrafted and other unique items soaring more than 300% last year. Yet after starting 2021 with continued positive momentum from a successful holiday season, Etsy’s stock has fallen roughly 30% from its highs in early March.
Etsy wasn’t on Wood’s radar until June 2, when the ARK Next Generation Internet ETF (NYSEMKT: ARKW) invested about $27 million in the e-commerce stock. That was enough to give Etsy an overall allocation of almost half a percent of the assets of the ETF.
What might have prompted the move was Etsy’s acquisition of London-based apparel-resale platform provider Depop. Etsy is spending $1.6 billion to add exposure to this fast-growing niche of the retail industry. While Wood hasn’t added shares of Poshmark (NASDAQ: POSH) or other industry players, it’s possible that she sees the combination of Etsy’s and Depop’s businesses as an opportunity. Etsy shareholders applauded the deal, and ARK investors hope that Wood will be right in the timing of her purchase.
Okta (NASDAQ: OKTA) has also given investors a wild ride over the past 1-1/2 years. 2020 brought huge returns for the cloud-based identity verification and cybersecurity specialist, with shares gaining 120% last year. However, the stock has fallen more than 25% from its February highs and is down more than 15% so far in 2021.
Okta has played a significant role in ARK’s Next-Generation Internet ETF for some time. It now makes up about 1.4% of the fund’s assets, with a big boost having come just last week as ARK made a roughly $25 million buy of Okta shares on May 27.
Wood likes companies with ambitious growth plans, and Okta has jumped at the chance to expand with its recent $6.5 billion acquisition of Auth0. Yet some fear that the purchase was too pricey, especially given the costs of integrating Auth0 into Okta’s existing business, and they’re not entirely happy about expectations for operating losses in 2021 after Okta posted a modest operating profit in 2020.
Nevertheless, digital security is undoubtedly a growing market, and the digital transformations that so many companies are going through will give Okta plenty of opportunities to pick up new business. Wood apparently believes Okta is well-positioned to take full advantage of those trends well into the future.
Finally, Twitter (NYSE: TWTR) has become a big favorite of Wood’s ETFs. The social media company holds the No. 3 spot in the Next Generation Internet ETF and also makes the grade in Wood’s cornerstone ARK Innovation ETF (NYSEMKT: ARKK), with total positions worth about $640 million at recent prices.
Twitter did well in 2020, rising nearly 70%, and continued to push higher to begin 2021. Yet after a recent 25% pullback, the stock is barely higher for the year. That has Wood jumping at the chance to add shares, with purchases of nearly 1 million shares on May 24 and 25 and more than 750,000 shares the previous week.
One of Twitter’s challenges over time has been monetization, and the microblogging specialist is pursuing several potential courses of action to address it. A potential $3 monthly subscription version could generate organic revenue from users, while rolling out advertising for its new Fleets disappearing-post service could bring in more money from marketers. That could be what turns the tide and gets Twitter’s stock back moving in the right direction again.
Watch for Wood
Cathie Wood has a big following because of her long-term mindset and attention to promising trends throughout the economy. If her views on those trends are correct, then turnarounds for Twitter, Okta, and Etsy could be lucrative opportunities for ARK Invest shareholders.
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