In this article, we discuss the 10 small-cap stock picks of Cathie Wood’s 2022 portfolio.
Cathie Wood is the brains behind ARK Investment Management, a Florida-based hedge fund which manages a number of exchange-traded-funds (ETFs). The most notable among these is the ARK Innovation ETF (NYSE:ARKK) which became the world’s largest actively managed ETF in 2020 with around $17 billion in assets under management (AUM). It posted extraordinary returns of 170% in 2020, establishing Cathie Wood as the name to watch in the space of disruptive tech.
But the global trends around inflation and the Russia-Ukraine tensions led investors to abandon risky, growth stocks in favor of defensive plays. This led to Wood’s Innovation ETF losing 60% in the last 12 months. However, she has refused to be drawn into the anxious investor sentiment, and instead doubled down on her growth picks, noting that these stocks were now in ‘deep value territory’.
Investors are now flocking back towards Wood’s ARK Innovation ETF, recording the biggest inflows the fund has seen in a year. In the first week of May, the ETF received investments of $447.4 million, registering the third consecutive week of inflows. Money-watchers realize that fringe picks in Wood’s portfolio could very well become the next FAANG stocks, and therefore it would be wise to know which small-cap stocks the famed investor is bullish on. In the first quarter of 2022, Cathie Wood made new purchases in 38 stocks, made additional purchases in 140 equities, completely sold out of 46 firms, and decreased stakes in 167 stocks. Some of the most exciting stocks in Cathie Wood’s portfolio include Tesla, Inc. (NASDAQ:TSLA), Roblox Corporation (NYSE:RBLX), and Sea Limited (NYSE:SE).
Cathie Wood of ARK Investment Management
Let’s take a look at the top 10 small-cap stocks to buy according to Cathie Wood.
Our Methodology
After scouring Cathie Wood’s 13F portfolio for the first quarter of 2022, we chose her top 10 small-cap stock picks. Hedge fund data around each stock has been provided to give readers better context for their investment choices, and has been derived Insider Monkey’s database of 924 elite hedge funds tracked at the end of the fourth quarter of 2021.
Cathie Wood’s 2022 Portfolio: 10 Small-Cap Stock Picks
10. CareDx, Inc (NASDAQ:CDNA)
ARK Investment Management’s 13 Portfolio: 0.54%
ARK Investment Management’s Stake Value: $129.88 million
Number of Hedge Fund Holders: 26
Market Cap: $1.15 billion
CareDx, Inc (NASDAQ:CDNA) starts off our list of the top small-cap stocks in the portfolio of Cathie Wood’s ARK Investment Management. The fund owned 3.51 million shares of CareDx, Inc worth $129.88 million at the end of the first quarter of 2022, representing 0.54% of its total portfolio.
Based in San Francisco, CareDx, Inc offers diagnostic solutions for transplant patients, such as AlloSure Kidney for kidney transplant patients, as well as solutions for heart and lung transplants.
Stephens analyst Mason Carrico in late April initiated coverage of CareDx, Inc with an ‘Overweight’ rating and a $50 price target. The analyst notes that the firm has established itself as the leader in transplant diagnostics over the last twenty years, which has resulted in its presence within the majority of US transplant centers. He sees the firm capturing the majority share of the market as it continues expanding.
Reporting its first quarter earnings on May 5, CareDx, Inc posted an EPS of -$0.13, missing estimates by $0.11. Revenue of $79.4 million for the quarter outperformed estimates by $303,000 and grew 17.8% year-on-year.
Out of all the hedge funds tracked by Insider Monkey at the close of the fourth quarter, 26 reported owning stakes in CareDx, Inc with a combined value of $360.6 million. This is down from 29 hedge funds with $637.9 million worth of positions in the company a quarter ago.
Just like Tesla, Inc., Roblox Corporation, and Sea Limited, CareDx, Inc is an exciting stock in the portfolio of Cathie Wood.
9. TuSimple Holdings Inc. (NASDAQ:TSP)
ARK Investment Management’s 13 Portfolio: 0.66%
ARK Investment Management’s Stake Value: $158.79 million
Number of Hedge Fund Holders: 15
Market Cap: $1.63 billion
TuSimple Holdings Inc. (NASDAQ:TSP) deals in the provision of technology that enables autonomous driving for semi-trucks in the United States and internationally. According to regulatory filings for the first quarter of 2022, ARK Investment Management owned 13.01 million shares of TuSimple Holdings Inc. with a price tag of $158.8 million, which represented 0.66% of its overall portfolio.
On May 13, RBC Capital analyst Joseph Spak downgraded TuSimple Holdings Inc. to ‘Sector Perform’ from ‘Outperform’ and revised the price target to $7 from $14. The analyst is bullish on the firm’s tech following its first investor day since its IPO in April 2021. He noted that while the firm remains one of the leaders in autonomous trucking, the tech milestones in the market are not enough to attract incremental investors, as the opportunity shall be rewarding by at least 2025 or longer.
For the first quarter of 2022, TuSimple Holdings Inc. posted an EPS of -$0.50, outperforming estimates by $0.04. The company raked in $2.26 million in revenue for the quarter, beating estimates by $247,000 and showing a boost of 139.83% year-on-year.
Of the 900+ hedge funds in the database of Insider Monkey at the close of Q4 2021, 15 held stakes in TuSimple Holdings Inc. with a combined worth of $747.8 million. This shows growing investor confidence in the company over the previous quarter where 12 hedge funds were long on the company shares.
8. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)
ARK Investment Management’s 13 Portfolio: 0.73%
ARK Investment Management’s Stake Value: $175.55 million
Number of Hedge Fund Holders: 18
Market Cap: $1.63 billion
Kratos Defense & Security Solutions, Inc. is next on the list of small-cap stocks to buy according to Cathie Wood. It operates as a government contractor for the US Department of Defense, providing sensitive technology such as space and satellite communications, cybersecurity/warfare, as well as unmanned aerial, ground and seaborne systems. Wood owned 8.57 million shares of Kratos Defense & Security Solutions, Inc. at the close of Q1 2022, making it the firm’s largest shareholder.
Baird analyst Peter Arment on May 12 upgraded Kratos Defense & Security Solutions, Inc. to ‘Outperform’ from ‘Neutral’ and kept a price target of $20. The analyst feels the stock price has significantly reset in the last 15 months as shares are down 61% from last year’s highs, presenting long-term investors an attractive buying opportunity.
18 hedge funds reported owning positions in Kratos Defense & Security Solutions, Inc. at the end of the fourth quarter, with a total value of $214.9 million. This shows a positive trend from the preceding quarter where 15 hedge funds held $232.8 million worth of stakes in the defense firm.
Kratos Defense & Security Solutions, Inc. recorded an EPS of $0.04 for the first quarter, outperforming estimates by $0.03. Its revenue for the quarter was recorded at $196.2 million, falling slightly below analysts’ expectations by $1.5 million.
7. Stratasys, Ltd. (NASDAQ:SSYS)
ARK Investment Management’s 13 Portfolio: 0.82%
ARK Investment Management’s Stake Value: $197.16 million
Number of Hedge Fund Holders: 22
Market Cap: $1.10 billion
Stratasys, Ltd. (NASDAQ:SSYS) deals in the provision of 3D printing technology. It is based in Minnesota, and offers products such as polyjet printers, stereolithography printing systems, as well as material used in the processes of 3D printing. In early May, the Biden administration launched the Additive Manufacturing Forward, or ‘AM Forward’ plan, under which leading manufacturers in the US will support the additive manufacturing capabilities of smaller US companies specializing in the technology, thereby helping revolutionize manufacturing across the country. Stratasys, Ltd. stands to benefit from this government initiative as one of the main players in the additive manufacturing space.
On February 24, Lake Street analyst Troy Jensen kept a ‘Buy’ rating on Stratasys, Ltd. shares and lowered the firm’s price target to $40 from $48. He holds that accelerating revenue growth will drive profitability for the firm going forward, and he sees its shares trading at a significant discount to peers.
At the close of the first quarter of 2022, Cathie Wood’s 13 filings showed that her hedge fund owned 7.76 million shares of Stratasys, Ltd. with a price tag of $197 million. She also stands as the largest shareholder of the 3D printing firm.
Of the 924 elite hedge funds tracked by Insider Monkey at the end of December, Stratasys, Ltd. shares were found in the portfolios of 22 hedge funds with a combined value of $336.3 million. This is up from 21 hedge funds with $270 worth of positions in the company a quarter ago.
Alger, an investment firm, talked about Stratasys, Ltd. in its Q1 2021 investor letter, stating:
“Short position Stratasys also contributed to performance. Stratasys is one of the larger 3D printing companies. While additive manufacturing (3D printing) is a revolutionary concept, it has only seen its primary adoption for manufacturing prototypes and test parts, not high-volume end-use parts. Unfortunately for incumbents like Stratasys, additive manufacturing has continued to attract capital and dozens of new entrants have emerged with new technologies targeting specific applications. Industry pioneers like Stratasys have seen key patents expire and have lost market share to new competition. As a result of these factors, Stratasys has not grown for five years. Some industry participants believe that Stratasys’ plastic extrusion technology is simply too slow to be an acceptable solution for higher volume manufacturing. The short position contributed to portfolio returns when Stratasys’ shares declined due to year-over-year revenue contraction, continuing market share losses, a talent exodus, the issuance of new shares via a secondary offering, and no significant progress on developing new opportunities in promising additive verticals like metal and dental.”
6. InVitae Corporation (NYSE:NVTA)
ARK Investment Management’s 13 Portfolio: 0.92%
ARK Investment Management’s Stake Value: $220.62 million
Number of Hedge Fund Holders: 24
Market Cap: $862.12 million
Then there’s InVitae Corporation (NYSE:NVTA), a medical genomics company which combines genetic information with mainstream medical practice by developing genetic tests that gauge hereditary conditions in cancer, neurology, cardiology, pediatric, and other rare diseases.
A longstanding fan and investor of such disruptive tech, Cathie Wood owned 27.68 million shares of the firm at a value of $220.6 million, representing 0.92% of her total holdings and setting her up as the firm’s largest shareholder at the end of Q1 2022.
On May 4, Raymond James analyst Andrew Cooper lowered the firm’s price target on InVitae Corporation to $8.50 from $10.50 and reiterated an ‘Outperform’ rating on the company shares. He is bullish on the pace of the firm’s revenue growth in the near and long term, and also likes its improving cash burn.
For the first quarter of 2022, InVitae Corporation reported EPS of -$0.78, falling below estimates by $0.02. Revenue of $123.7 million for the quarter also fell below estimates by $5.62 million, but registered a growth of 19.37% year-on-year.
24 hedge funds held positions in InVitae Corporation at the end of the fourth quarter of 2021. The combined value of these holdings stood at $958.9 million. In the quarter before, the same number of hedge funds were long on the company shares.
In addition to Tesla, Inc., Roblox Corporation, and Sea Limited, InVitae Corporation is attracting the attention of investors on Wall Street.
5. Veracyte, Inc. (NASDAQ:VCYT)
ARK Investment Management’s 13 Portfolio: 1%
ARK Investment Management’s Stake Value: $241.4 million
Number of Hedge Fund Holders: 16
Market Cap: $1.32 billion
Up next on the list of small-cap stocks to buy according to disruptive tech investor Cathie Wood is Veracyte, Inc. (NASDAQ:VCYT). The firm deals in the provision of medical diagnostics. Its products include treatments for thyroid cancer, lung cancer screening and diagnosis of pulmonary fibrosis. Cathie Wood’s ARK Investment Management owned 8.75 million shares of Veracyte, Inc. at the close of the first quarter, with a price tag of $241.4 million which represented 1% of its total portfolio.
On May 4, Needham analyst Mike Matson maintained a ‘Buy’ rating on Veracyte, Inc. shares and revised the price target to $26 from $31. Matson noted that the firm has a long runway of strong growth, and is poised to become one of the leaders in the cancer diagnostics space. The company also beat expectations in its Q1 earnings, with organic revenue growth improving to 9% from 5% in the fourth quarter.
Veracyte, Inc. posted an EPS of -$0.20 for the first quarter, surpassing analysts’ expectations by $0.03. The company recorded quarterly revenue of $67.8 million, beating estimates by $5.9 million and increasing 84.7% in comparison to the year-ago quarter.
16 hedge funds were long Veracyte, Inc. at the end of Q4 2021, with combined positions worth $442 million. This is down from 21 hedge funds in the previous quarter.
Artisan Partners, an investment firm, discussed Veracyte, Inc. in its Q2 2021 investor letter, stating:
“Among our bottom contributors (includes) Veracyte. Veracyte develops and markets molecular tests designed to minimize ambiguity in the treatment of patients with cancer. These tests can reduce unnecessary surgeries and help put cancer patients at ease when the decision is to “watch and wait.” Shares have been pressured amid a recent investment cycle (acquired Decipher and HalioDX) and a resurgence of the pandemic earlier this year weighing on testing volumes. In addition, the company’s founder and CEO recently announced she was moving to Executive Chair. Her replacement is the former CFO of Illumina, who is very knowledgeable in invitro diagnostics and played a critical role in Illumina’s international expansion efforts (which we expect him to pursue at Veracyte). We are maintaining our position as patients return to the clinic for testing and as management executes on its strong R&D pipeline, including the upcoming launch of a nasal swab lung cancer test. Longer-term, the company is well-positioned to expand internationally as it ports its growing menu of tests onto the recently acquired nCounter instrument.”
4. Twist Bioscience Corporation (NASDAQ:TWST)
ARK Investment Management’s 13 Portfolio: 1.08%
ARK Investment Management’s Stake Value: $259.94 million
Number of Hedge Fund Holders: 16
Market Cap: $1.5 billion
Twist Bioscience Corporation (NASDAQ:TWST) deals in the development of synthetic DNA-based products. Its DNA synthesis platform enables the manufacturing of synthetic DNA by writing DNA on a silicon chip. These products are also used for drug discovery and the usage of DNA as a digital storage medium. Cathie Wood, according to 13F filings for the first quarter, owned 5.26 million shares of Twist Bioscience Corporation at a value of $259.9 million.
In total, 16 hedge funds were bullish on the company shares at the close of the fourth quarter, down from 19 a quarter ago. The combined value of these Q4 hedge fund holdings stood at $564.8 million.
On May 6, Baird analyst Catherine Ramsey Schulte gave Twist Bioscience Corporation an unchanged rating of ‘Outperform’, and changed the price target to $43 from $70. She remains positive on the firm’s underlying momentum and its differentiated technology platform, and believes in its potential long-term upside.
In Q1 2022, Twist Bioscience Corporation posted an EPS of -$1.02, exceeding analysts’ forecasts by $0.28. Quarterly revenue increased 54.2% from the year-ago quarter to come in at $48.1 million, also beating consensus estimates by $2.9 million.
Here is what investment firm Baron Funds had to say about Twist Bioscience Corporation in its Q2 2021 investor letter:
“We initiated a position in Twist Bioscience Corporation, a provider of synthetic DNA. The company’s proprietary semiconductor-based platform has driven its position as the low-cost provider of DNA for a variety of high-growth applications. These include the attractive areas of synthetic biology, liquid biopsy, and antibody discovery. Of note, the antibody business has the potential to become a source of high-margin royalty streams in the future. As further optionality, we believe Twist has a shot at disrupting the entire digital data storage industry with DNA-based storage.”
3. PagerDuty, Inc. (NYSE:PD)
ARK Investment Management’s 13 Portfolio: 1.46%
ARK Investment Management’s Stake Value: $351.04 million
Number of Hedge Fund Holders: 27
Market Cap: $2.06 billion
PagerDuty, Inc. (NYSE:PD) is another small-cap stock that features in the Q1 2022 portfolio of Cathie Wood, who owns 10.26 million shares of the firm valued at $351 million. The company operates a digital operations management software, which collects data from any software and device to understand opportunities and threats that need to be addressed in real-time. It serves customers in many industries including software and technology, telecommunications, financial services, media and entertainment, travel and retail.
On March 17, Craig-Hallum analyst Chad Bennett maintained a ‘Buy’ rating on PagerDuty, Inc. stock, and decreased the price target $45 from $52, whilst noting that he sees the firm’s return to 30%+ growth in mid 2022 as part of a sustainable growth trajectory.
Out of all the hedge funds tracked by Insider Monkey, 27 reported owning stakes in PagerDuty, Inc. at the end of Q4 2021 with an overall value of $717.4 million. This is down from 30 hedge funds with bullish bets on the company shares a quarter ago.
2. Fate Therapeutics, Inc. (NASDAQ:FATE)
ARK Investment Management’s 13 Portfolio: 1.77%
ARK Investment Management’s Stake Value: $426.01 million
Number of Hedge Fund Holders: 31
Market Cap: $2.11 billion
Biopharmaceutical firm Fate Therapeutics, Inc. (NASDAQ:FATE) is up next on the list of Cathie Wood’s top small-cap stock picks. The firm develops programmed cellular immunotherapies for cancer and immune disorders. Regulatory data for the first quarter of 2022 showed that Cathie Wood owned 10.98 million shares of the firm priced at $426 million, representing 1.77% of her overall portfolio.
Truist analyst Robyn Karnauskas on April 13 maintained a ‘Buy’ rating on Fate Therapeutics, Inc. shares, and lowered the price target to $75 from $125.
As of the end of the fourth quarter, 31 hedge funds owned stakes in Fate Therapeutics, Inc., with a combined worth of $1.77 billion. This is down from 36 hedge funds holding $2.1 billion worth of positions in the firm a quarter earlier.
Fate Therapeutics, Inc. reported its first quarter earnings on May 4, and EPS was recorded at-$0.68, beating estimates by $0.06. Revenue of $18.4 million for the quarter was also above analysts’ forecasts by $9.4 million, and registered an uptick of 65.27% from the year-ago quarter.
1. Beam Therapeutics Inc. (NASDAQ:BEAM)
ARK Investment Management’s 13 Portfolio: 1.96%
ARK Investment Management’s Stake Value: $469.9 million
Number of Hedge Fund Holders: 22
Market Cap: $2.21 billion
Beam Therapeutics Inc. (NASDAQ:BEAM) is the largest small-cap holding in the Q1 2022 portfolio of Cathie Wood. The famed investor owned 8.2 million shares worth roughly $470 million in the firm, making her its biggest shareholder. Based in Cambridge, Massachusetts, Beam Therapeutics Inc. develops precision genetic medicines for patients with serious diseases such as sickle cell disease, thalassemia and leukemia, among others.
On April 28, Credit Suisse analyst Richard Law initiated coverage of Beam Therapeutics Inc. with a Neutral rating and a price target of $62. In January, the firm announced a four-year research collaboration with Pfizer Inc. (NYSE:PFE) to develop in vivo base editing therapies targeting three undisclosed targets for rare genetic diseases of the liver, muscle and central nervous system. Beam Therapeutics Inc. will receive $300 million as an upfront payment, and will also be eligible to receive up to $1.05 billion in future milestones.
Investors were seen buying up on Beam Therapeutics Inc. stock at the close of the fourth quarter of 2021, where 22 hedge funds held positions in the firm with a combined value of $1.17 billion. In contrast, 20 hedge funds held stakes worth $1.24 billion in the firm a quarter ago.
Baron Funds, an investment firm, talked about many stocks in its Q1 2021 investor letter, and Beam Therapeutics Inc. was one of them. The fund said:
“Beam Therapeutics Inc. is a biotechnology company pioneering a novel technology called base editing, which allows for individual base pairs (the letters of DNA) to be modified. Shares fell along with other biotechnology stocks driven by a sudden rise in treasury yields. Early stage biotechnology stocks are particularly sensitive to interest rates because their cash flows are further in the future. We believe we are entering into a phase of significant advancement for the gene editing field that will eventually lead to curative therapies, and we think Beam has a unique platform technology.”
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