Two centuries ago one of the first economists, David Ricardo coined the still famous investment adage “Let your profits run (on).” Makes sense. All else equal, one would prefer to own or buy stocks in uptrends, and there have been some exceptional uptrends this year. Thirty-six Russell 1000 stocks are up more than 100%. What would Ricardo have done with his winners if he had options to trade? Here’s my take. Let ’em ride: Several of 2023’s best-performing stocks were grossly undervalued at the beginning of the year. In some cases for reasons that were easily identifiable both then and now. Arguably the best example is Meta . At its November 2022 low Meta traded down to $90 a share, less than 7 times the $13.71 in adjusted eps the company earned in FY2021. Although revenue growth paused in 2022 the company had a very strong balance sheet and had historically been a free cash flow generating powerhouse. The problem was that Mark Zuckerberg was losing billions, throwing money at his vision for the metaverse, and investors were concerned it had become an obsession taking precedence over the best course for the business. Many investors were quite vocal about their displeasure, but voicing their concerns was all they could do because Zuckerberg controls more than 50% of the voting rights through a special class of shares. So while investors recognized the company could deliver massive earnings and free cash flow, they were afraid Zuckerberg had gone off the reservation. Eventually, though he did elect to moderate his spending on his ambitious visions. The company has returned to record profitability and free cash flow generation and the stock has responded in kind, up 140% since the November 2022 low. While certainly not as cheap as it was a year ago, Meta remains cheap at not because it is trading at 20 times FY2024 EPS estimates of $18 a share, but because that represents 20% annual EPS growth. The stock sports topline growth, substantial margins, a strong balance sheet, substantial free cash flow, and a moat around its business. META’s biggest threat is itself, and as long as management doesn’t go back down the rabbit hole, it is a poster child for growth at a reasonable price (GARP). Other big winners for 2023 that remain well positioned for 2024 as long-term rates have dropped while unemployment has remained low include Vertiv Holding , Builders Firstsource , Topbuild Corp , and PulteHome . Nvidia and Uber are too, even despite the huge runs they’ve had at reasonable valuation given their respective growth rates, but bear in mind that some investors may have deferred taking gains in these and other large winners for tax reasons. Due to this and their high betas, any market choppiness in the market generally will affect these names more severely. It’s time to hedge some of those gains (or take profits): The second best-performing stock in the Russell 1000 for 2023 is Coinbase (COIN) . As of year-end 2022, COIN was down more than 90% from its November 2021 peak. Investors shunned the stock as cryptocurrencies had plummeted. Bitcoin, the most well-known cryptocurrency, had fallen more than 76% from peak to trough, and it would be reasonable to assume that if cryptocurrencies continued to perform badly, speculators would trade them less often which would hurt the business of a crypto exchange. It did. Revenues fell nearly 60% year-over-year between FY2021 and FY2022. The company, which had made $21 in adjusted EPS in 2021, swung to a $6.63 a share loss. Unsurprisingly, as cryptocurrencies rebounded in 2023, so did COIN. What’s surprising though is the degree to which it rebounded. Where bitcoin rose > 150%, COIN is up over 400%. Some businesses are indeed highly leveraged to prices for other goods or assets. Gold miners’ prices are levered to the price of gold, oil companies to the price of oil, chip makers like MU to the price of NAND and DRAM and cryptocurrency miners and exchanges to the prices of the cryptocurrency. The issue I have with Coinbase is that despite the sharp increase in cryptocurrency prices, revenues and earnings have not rebounded in quite the same way. FY2024 revenue expectations of 2.9 billion are more than 60% below the company’s zenith in 2021 of $7.8 billion. The company is expected to report FY2023 losses of 89 cents share. Street estimates are not forecasting a return to profitability until 2027. Why not? How is it that cryptocurrency prices can rebound so sharply and the company cannot return to the same level of profitability they saw in 2020 when the price of bitcoin for example was far lower than it is today? If I believed that Coinbase could reliably generate $4.7 billion in net income as it did in 2021 this thing would be ludicrously cheap, but it feels as if the landscape is shifting beneath the company’s feet. Other companies I place in this category include Roku and SoFi . The single best-performing stock in the Russell 1000 for 2023 is Affirm , up nearly 420% year-to-date. Affirm Holdings is a popular buy now, pay later fintech company. How popular? It’s growing topline at greater than 20%. Its popularity is understandable. In some cases, it offers purchases at zero interest, considerably more attractive than using a high-interest credit card. Additionally, these loans aren’t currently reported to TransUnion or Equifax, so the impact of taking the loan on the borrower’s credit score may be reduced, and in any case, borrowers may wish to preserve available credit lines for other uses. Likely, the company’s partnerships with big online outlets such as Amazon and Walmart are going to show substantial gains during this holiday shopping season. The market opportunity is also substantial relative to the company’s size. At $15 billion in market capitalization, Affirm is still tiny. To put things in perspective, the combined market capitalization of Visa and Mastercard is nearly $1 trillion. Paypal is nearly $70 billion. The problem here is that the idea of buy-now-pay-later isn’t proprietary. Affirm is likely to face competition from other payment players. Charge-offs remain low, but we know that consumer credit balances have been rising steadily and are now at all-time highs. Auto loan delinquencies have also been rising. If the other large credit agencies TransUnion or Equifax eventually join Experian and begin tracking these loans, that would eliminate a perceived benefit by consumers. Ultimately though it comes down to a question of whether I would prefer to own money-losing Affirm based on their topline growth, or profitable Paypal for 1/10th the multiple betting they’ll catch on to the portions of Affirm’s business that are growing. If you own, but don’t want to sell, consider purchasing the March $45/$35 put spread as a particle hedge, as illustrated below. The answer is simple, I’d much rather own PayPal (or the major credit card companies). Other names I place in this category include Palantir Technologies . Here too is a company that is growing, but it’s unclear whether the growth targets may be a bit ambitious. Palantir relies heavily on government contracts, greater than 56% by revenue. Government business can be great, but it does introduce concentration risk as that segment of their revenue share indicates. One final thing: hedge when you can, not when you have to. As I write this the VIX Index closed at 12.45, only narrowly higher than the 12.07 low for the year on December 12th while the S & P 500 is just slightly below its record high set on January 3, 2022. DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
Tag: Roku Inc
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The ‘No. 1 question’ Ark Invest’s Cathie Wood gets on her website
The most popular question on Ark Invest’s website has nothing to do with investing in the U.S., according to the firm’s CEO and Chief Investment Officer Cathie Wood.
“The No. 1 question on our website as we track these questions is: Why can’t we buy your strategies in Europe?” the tech investor told CNBC’s “ETF Edge” this week.
Wood’s firm expanded its exposure to Europe last month by acquiring the Rize ETF Limited from AssetCo.
“We found this little gem of a company inside of AssetCo, which philosophically and from a DNA point-of-view, is very much like Ark,” Wood said. “They know what’s in their portfolios. They’re very focused on the future, thematically oriented. They do have a sustainable orientation, which is absolutely essential in Europe.”
She speculates 25% of total demand for Ark’s research strategies comes from Europe.
“We’re terribly impressed with the quality of their [Rise ETF] own research and due diligence,” Wood said. “We saw it during the deal, and I think we’re going to hit the ground running if the regulators approve our strategies there. And, of course, we’d like to distribute their strategies throughout the world including the US.”
Wood’s firm has around $25 billion in assets under management, according to the firm. As of Sept. 30, FactSet reports Ark’s top five holdings are Tesla, Coinbase, UiPath, Roku and Zoom Video.
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ARK CEO Cathie Wood says she swerved the Arm IPO frenzy. Here’s why
Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.
Brendan McDermid | Reuters
ARK Invest CEO Cathie Wood said she did not participate in Arm‘s blockbuster initial public offering last week because she finds the British chip designer was overvalued relative to its competitive position.
Arm, the Cambridge-based company controlled by Japanese investment giant SoftBank, listed on New York’s Nasdaq on Thursday at an IPO price of $51 a share for a valuation of almost $60 billion. Shares jumped almost 25% on the first day of trading to close at $63.59.
The initial buzz has since fizzled, with the stock suffering successive daily declines to end the Tuesday trade session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around AI-exposed companies was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.
Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design firm, holds an initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023.
Brendan Mcdermid | Reuters
“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower priced names with much more exposure to AI.”
Arm declined to comment.
The top holdings in Wood’s flagship ARK Innovation ETF include Tesla, Shopify, UiPath, Unity, Zoom, Twilio, Coinbase, Roku, Block and DraftKings.
After taking a beating during the recent cycle of aggressive interest rate hikes from the U.S. Federal Reserve, the ARK ETF resurged this year, as investors flocked to stocks with AI exposure. Wood said that the anticipation of interest rates peaking would further this trend.
“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she explained.
With inflation coming down across major economies and with central banks expected to begin unwinding their aggressive monetary policy tightening over the next year, Wood suggested the coming period “should be a very good environment for innovation and global megatrend strategies.”
ARK Invest on Wednesday acquired British thematic ETF issuer Rize ETF for £5.25 million ($6.5 million), marking the company’s first venture into the European passive investment market.
Wood said that Europe has not had access to actually invest in the company’s U.S.-based ETFs until now, despite accounting for around 25% of demand for the company’s research since ARK’s inception in 2014.
“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood said. “We are very open-minded about technologies flourishing throughout the world, including Europe.”
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Stocks making the biggest moves premarket: Intel, Roku, Procter & Gamble and more
Signage outside Intel headquarters in Santa Clara, California, on Monday, Jan. 30, 2023.
David Paul Morris | Bloomberg | Getty Images
Check out the companies making headlines before the bell.
Intel — Shares popped 6.7% after the chipmaker posted better-than-expected second-quarter results and a return to profitability after two consecutive losing periods. Intel’s forecast for the third quarter also came in above analyst expectations. The company reported adjusted earnings of 13 cents a share on revenues of $12.95 billion.
Roku — The streaming stock rallied nearly 10% after reporting a narrower-than-expected loss for the second quarter. Roku reported a loss of 76 cents a share and revenues of $847 million. Analysts polled by Refinitiv had anticipated a loss of $1.26 per share and $775 million in revenue.
Biogen — Biogen shares moved slightly lower after the biotechnology company said it’s acquiring Reata Pharmaceuticals for $172.50 per share, in a cash deal valued at about $7.3 billion. Shares of Reata soared more than 51% on the news.
Procter & Gamble — The consumer giant saw shares rise more than 1% in premarket trading after the company reported quarterly earnings and revenue that beat analysts’ expectations. However, P&G released a gloomy outlook for its fiscal 2024 sales that fell short of Wall Street’s estimates.
Exxon Mobil — Shares moved slightly lower after the oil stock posted mixed second-quarter results. The company reported earnings of $1.94 a share, excluding items, that fell short of the $2.01 expected by analysts, per Refinitiv. Revenues came in at $82.91 billion, above the expected $80.19 billion.
Chevron — The oil stock lost nearly 1% even after reporting a beat on the top and bottom lines for the second quarter. Earnings fell from a year ago due to a drop in oil prices.
First Solar – Shares soared 12% after the solar company posted earnings per share of $1.59 on revenue of $811 million for the second quarter. Those results beat Wall Street expectations of 96 cents per share on revenue of $721 million, according to Refinitiv. The company also announced plans to invest up to $1.1 billion to build a fifth manufacturing facility in the United States.
Enphase Energy – Shares of Enphase dropped more than 15% after the company posted second-quarter revenue Thursday of $711 million that fell short of analyst estimates of $722 million, according to Refinitiv. The stock also faced a wave of downgrades Friday morning from Deutsche Bank, Wells Fargo and Roth MKM.
Sweetgreen – Shares of the salad chain slid more than 13% after the company posted weak sales that missed Wall Street expectations in the second quarter and a net loss of $27.3 million, or 24 cents per share. Sweetgreen did say it’s aiming to turn a profit for the first time by 2024.
Ford Motor – The automaker said adoption of electric vehicles is going more slowly than the company forecast and that it expects to lose $4.5 billion on the EV business this year, widening losses from roughly $3 billion a year earlier. Otherwise, Ford posted strong quarterly earnings that beat Wall Street expectations and raised its full-year guidance. Shares were flat in premarket trading.
Juniper Networks — Shares of the technology company fell 8% after Juniper’s third-quarter guidance came in lighter than expected. The company said it expects earnings per share between 49 cents and 59 cents, with revenue between $1.34 billion and $1.44 billion. Analysts had penciled in 62 cents per share and $1.48 billion of revenue. The company’s second-quarter results did come in slightly above expectations.
AstraZeneca — U.S. listed shares of the drugmaker added more than 5% before the bell. The U.K.-based company reported second-quarter earnings of $2.15 per share on $11.42 billion in revenue. That surpassed the EPS of $1.95 expected by analysts polled by Refinitiv on revenues of $11.03 billion. AstraZeneca also said it would buy a portfolio of preclinical rare disease gene therapies from Pfizer for up to $1 billion.
Xpeng — The Chinese electric vehicle stock jumped more than 6% in the premarket. Jefferies upgraded shares to a buy from a hold, citing Xpeng’s joint development plan with Volkswagen
New York Community Bancorp — The regional bank stock rose about 2% before the bell after JPMorgan upgraded New York Community Bancorp to an overweight rating from neutral. The Wall Street firm called the company a “massive market share taker” in its upgrade.
Mondelez International — Mondelez International added 2.7% before the bell on strong second-quarter results. The snack maker on Thursday reported earnings of 76 cents a share, excluding items, on $8.51 billion in revenue. Analysts polled by Refinitiv had estimated EPS of 69 cents and revenues of $8.21 billion.
— CNBC’s Tanaya Macheel, Yun Li and Jesse Pound contributed reporting
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Roku says 26% of its cash reserves are stuck in Silicon Valley Bank
A video sign displays the logo for Roku Inc, a Fox-backed video streaming firm, in Times Square after the company’s IPO at the Nasdaq Market in New York, September 28, 2017.
Brendan McDermid | Reuters
Roku has $487 million of cash and cash equivalents in uninsured deposits at failed Silicon Valley Bank, the streaming media company said in an SEC filing Friday.
About 26% of Roku’s $1.9 billion in cash was deposited with SVB, which was placed into receivership by the FDIC midday Friday.
Roku shares fell over 4% after hours on the news.
“At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,” Roku said in a press release.
Nonetheless, Roku said it believed it would be able to meet its capital obligations for the “next twelve months and beyond” with its unaffected $1.4 billion in cash reserves at other, “large financial institutions.”
“As stated in our 8-K, we expect that Roku’s ability to operate and meet its contractual obligations will not be impacted,” a Roku spokesperson said in a statement to CNBC.
The collapse of SVB jarred both large and small companies alike. As the favored lender and banker for many Silicon Valley startups and venture capital firms, the company’s receivership has alarmed founders, who worry about meeting payroll and critical obligations with limited cash available.
FDIC insurance only covers the first $250,000 in deposit accounts, a fraction of the cash that Roku and many other companies had vaulted with SVB.