In this article we will take a look at the 10 best stocks to buy in 2021 according to Cathie Wood. You can skip our detailed analysis of Wood’s history, investment philosophy, and hedge fund performance, and go directly to 5 Best Stocks to Buy in 2021 According to Cathie Wood.
Catherine Wood, the chief of New York-based Ark Investment Management, has had a tough week, seeing many technology-related growth stocks her company owns plummet in value as a bear outlook on the crypto industry and broader inflation worries result in panic selling and an increased interest in value stocks. Media reports indicate that Wood held 639,000 units of Grayscale Ethereum Trust and more than 8 million shares in Grayscale Bitcoin Trust at the end of the first quarter of 2021, reportedly the largest institutional crypto holding globally.
Bitcoin, the most popular cryptocurrency, fell to under $30,000 earlier this week as other crypto stocks tumbled as well after a record rally through the first few months of the year. The tide turned after Tesla, Inc. (NASDAQ: TSLA) owner Elon Musk, whose company holds more than $1 billion in Bitcoin, questioned the energy-intensive mining methods of the crypto industry. Wood has publicly clashed with the Tesla, Inc. (NASDAQ: TSLA) chief on the issue a number of times, highlighting that clean energy usage in mining was increasing dramatically.
As Bitcoin falls from the record high of $64,829.14 set in April, the companies that hold large crypto investments have also been affected. Square, Inc. (NYSE: SQ), the digital payments company which represents close to 5% of the investment portfolio of Ark Investment Management, tumbled more than 3% earlier this week before recovering a little yesterday. Square, Inc. (NYSE: SQ) has more than $400 million in crypto-related investments and the firm also facilitates crypto transactions on its network.
Another worthy mention in the Cathie Wood investment portfolio is Teladoc Health, Inc. (NYSE: TDOC), a telehealth firm based in New York. Teladoc Health, Inc. (NYSE: TDOC) is one of the leading biotechnology companies in the United States that is using cutting edge techniques to help medical institutions take advantage of the giant leaps in technology to help with patient monitoring, care, and diagnostics. The company recently announced the myStrength Complete, a behavioral health service to help treat conditions such as depression and anxiety.
Despite the wider regulatory worries surrounding her big investments, Wood has been bullish on the crypto industry. Even through the recent crisis, she has held firm, appearing in a Bloomberg interview on May 19 to reiterate her claim that Bitcoin would climb to a record $500,000 despite recent setbacks. She has also recently partnered with Amun Holdings, a Swiss company that offers exchange-traded products for investors to gain exposure to crypto. The ARK Innovation ETF has risen roughly 170% over the last year because of the investments made by Wood.
It still remains to be seen whether the optimistic outlook that Wood has on the crypto industry can navigate trouble in China and price volatility in the United States. However, it is true that crypto and the rise of fintech has changed market dynamics decidedly for years to come. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 best stocks to buy in 2021 according to Cathie Wood. We used ARK’s 13F data for the first quarter of 2021 for this analysis.
Best Stocks to Buy According to Cathie Wood
10. CRISPR Therapeutics AG (NASDAQ: CRSP)
Number of Hedge Fund Holders: 34
CRISPR Therapeutics AG (NASDAQ: CRSP) is a Switzerland-based biotechnology company founded in 2013. It is placed tenth on our list of 10 best stocks to buy in 2021 according to Cathie Wood. CRISPR stock has returned more than 68% to investors over the past year. As a gene-editing firm, the company concentrates on the development of transformative gene-based medicines for several different diseases. It develops these using a technology called Clustered Regularly Interspaced Short Palindromic Repeats. Like Tesla, Inc. (NASDAQ: TSLA) and Square, Inc. (NYSE: SQ), CRSP is one of the top holdings of Cathie Wood’s ARK.
CRISPR Therapeutics AG (NASDAQ: CRSP) posted earnings for the first quarter of 2021 in April, reporting a revenue of $0.54 million and earnings per share (EPS) of -$1.51. The EPS missed market predictions by $0.04.
At the end of the fourth quarter of 2020, 34 hedge funds in the database of Insider Monkey held stakes worth $2 billion in CRISPR Therapeutics AG (NASDAQ: CRSP), up from 26 the preceding quarter worth $405 million.
9. Spotify Technology S.A. (NYSE: SPOT)
Number of Hedge Fund Holders: 48
Spotify Technology S.A. (NYSE: SPOT) is a Sweden-based audio streaming and media services provider founded in 2006. It is ranked ninth on our list of 10 best stocks to buy in 2021 according to Cathie Wood. The company has offices in more than 15 countries around the world and operates in tens of others. It has more than 345 million monthly active users and more than 150 million subscribers. Spotify Technology S.A. (NYSE: SPOT) has returned more than 20% to investors over the course of the past twelve months. Like Tesla, Inc. (NASDAQ: TSLA) and Square, Inc. (NYSE: SQ), SPOT is one of the top holdings of Cathie Wood’s ARK.
Spotify Technology S.A. (NYSE: SPOT) stock jumped 2% in trading on April 29 as investment advisory Pivotal Research upgraded it to Buy from Hold. Pivotal assigned the stock a price target of $340, implying a 32% upside potential.
Out of the hedge funds being tracked by Insider Monkey, UK-based investment firm Aubrey Capital Management is a leading shareholder in Spotify Technology S.A. (NYSE: SPOT) with 41,400 shares worth more than $11 billion.
“At the current share price, Spotify Technology S.A. (NYSE: SPOT) basically only represents a fraction of the value they will be able to unlock in the growing market of audio entertainment. The key for Spotify is to change a variable cost base into a fixed cost base just like Netflix has. As the market share of the big labels, measured by the daily hours of engagement of the big labels, is declining, Spotify will be able to adjust its business model and create enormous operational leverage meaning that profitability will grow faster than expenses.
The music catalogue is not the business model. The value lies in the machine learning that drives discovery and engagement, the original content from people like Michelle Obama, Kim Kardashian, and Joe Rogan, the data analytics and distribution for artists, the direct and social relations artists can have with fans through music and videos. We believe that Spotify will be worth at least five times more in 2030.”
8. Baidu, Inc. (NASDAQ: BIDU)
Number of Hedge Fund Holders: 51
Baidu, Inc. (NASDAQ: BIDU) is a Beijing-based multinational technology firm founded in 2000. It is ranked eighth on our list of 10 best stocks to buy in 2021 according to Cathie Wood. Ark Investment Management, the hedge fund owned by Wood, holds more than 5 million shares in Baidu worth over $1.1 billion. This investment represents over 2.2% of the investment portfolio of the hedge fund. Baidu stock has offered investors returns exceeding 87% in the past year. Baidu is one of the largest internet and artificial intelligence firms in the world.
On May 19, investment advisory Daiwa boosted 2021 revenue forecasts for Baidu, Inc. (NASDAQ: BIDU) by 2% based on higher than expected contributions to income by the cloud and artificial intelligence products of the Chinese technology giant.
At the end of the fourth quarter of 2020, 51 hedge funds in the database of Insider Monkey held stakes worth $4.6 billion in Baidu, Inc. (NASDAQ: BIDU), up from 43 in the preceding quarter worth $2.8 billion.
“We have also fully exited our stake in Baidu, following their outstanding performance during the period and their lower relative upside potential compared to other investment alternatives, which we will discuss below.
The Chinese technology platform company Baidu, Inc. (NASDAQ: BIDU) has also been held in the portfolios managed by Alejandro, Miguel and myself for several years. During this period, we have seen very high volatility in its share price, which we have taken advantage of to make significant rebalancing moves in our position (in fact, we even sold our entire position once, when we thought the stock’s upside potential was exhausted). After several years of instability, market sentiment turned very positive, putting an end to the historical advertising problems in the healthcare sector, the divestments in O2O (Online-to-Offline) businesses that continued to weigh on the company’s margins, the IPO of part of the iQiyi streaming business (which hid Baidu’s underlying cash generation capacity) and the tough competition from other industry giants such as Tencent and Alibaba, as well as the entry of new players with disruptive business models (ByteDance). At the same time, the company’s recent commitment to electric vehicles contributed even more to this change of narrative. Baidu’s share price rose almost fourfold from the March 2020 lows to all-time highs and reached a valuation where the margin of safety, in our view, was too narrow.”
7. Shopify Inc. (NYSE: SHOP)
Number of Hedge Fund Holders: 90
Shopify Inc. (NYSE: SHOP) is a Canadian ecommerce company founded in 2006. It is placed seventh on our list of 10 best stocks to buy in 2021 according to Cathie Wood. Shopify Inc. (NYSE: SHOP) has returned more than 47% to investors in the past year. The hedge fund led by Wood owns more than 1 million shares in the Canadian firm worth close to $1.2 billion. This equates to almost 2.3% of the investment portfolio of the fund. Shopify is one of the biggest online retailers in the world with a market cap of close to $150 billion.
On May 11, Shopify Inc. (NYSE: SHOP) stock was upgraded to Buy from Hold by investment advisory Loop Capital with a price target of $1,400. However, Shopify stock has dropped 3% in recent days amid selling pressure in the tech industry.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. (NYSE: SHOP) with 1.7 million shares worth more than $1.8 billion.
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify Inc. (NYSE: SHOP)’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify, for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
6. Exact Sciences Corporation (NASDAQ: EXAS)
Number of Hedge Fund Holders: 40
Exact Sciences Corporation (NASDAQ: EXAS) is a Wisconsin-based molecular diagnostics firm founded in 1995. It is ranked sixth on our list of 10 best stocks to buy in 2021 according to Cathie Wood. Exact stock has returned more than 26% to investors in the past twelve months. The hedge fund run by Wood owns more than 9 million shares of the firm worth over $1.2 billion, representing close to 2.4% of the entire investment portfolio. The company focuses on making testing products for cancer.
In earnings results for the first quarter of 2021, posted earlier in May, Exact Sciences Corporation (NASDAQ: EXAS) reported earnings per share of -$0.18, beating market predictions by a healthy $0.84.
At the end of the fourth quarter of 2020, 40 hedge funds in the database of Insider Monkey held stakes worth $1.8 billion in Exact Sciences Corporation (NASDAQ: EXAS), up from 34 in the previous quarter worth $1.1 billion. Like Tesla, Inc. (NASDAQ: TSLA) and Square, Inc. (NYSE: SQ), EXAS is one of the top holdings of Cathie Wood’s ARK.
“Exact Sciences Corporation (NASDAQ: EXAS) shares were the final top contributor for the quarter on both the acquisition of Thrive Earlier Detection, a leading multi-cancer screening company, and strong earnings. Third quarter revenue grew 87% to $408 million, including $102 million from COVID19 testing, and the company reported a 77% gross margin and $94 million of adjusted EBITDA, up 16% year over year.
The company’s Thrive acquisition combines cancer screening pioneers, specifically integrating Thrive’s early-stage cancer screening test CancerSEEK, with Exact’s scientific platform, clinical organization, and commercial infrastructure (the largest commercial team by far with over 1,000 people in cancer diagnostics). Thrive’s recent CancerSEEK study is the only liquid biopsy clinical trial that screens undiagnosed patients. Combined with Exact Sciences Corporation (NASDAQ: EXAS)’s own multi-cancer liquid biopsy screening test (management disclosed compelling data on it for the first-time), Exact has quickly pivoted from its single cancer screening tests (Cologuard for colon cancer and Oncotype for breast cancer) and is now positioned as a leader in the $25 billion+ multi-cancer screening market.”
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Disclosure: None. 10 Best Stocks to Buy in 2021 According to Cathie Wood is originally published on Insider Monkey.