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Cathie Wood is betting on technology companies with disruptive innovations that are expected to kick start the fourth industrial revolution globally. Given the market’s current high volatility, Wood has hedged a portion of her portfolio through investments in large-cap tech stocks with impressive performance histories, namely Facebook, Inc. (FB), Netflix, Inc. (NFLX), and Baidu Inc. (BIDU). Read on to learn why these stocks could be solid bets now.
Cathie Wood has been betting on the evolution of technology since 2014 through her flagship Ark Next Generation Internet ETF (ARKW). At least 80% of the fund’s assets are invested in companies that have direct exposure to cloud computing, e-commerce, artificial intelligence and blockchain technology. The actively managed ETF was one of the most profitable Ark ETFs in 2020. The ETF gained 183.3% over the past year. As one of the most profitable investors this century, Wood places great substantial importance on to large-cap companies with immense market reach.
While these companies tend to grow at a slower pace versus their compared to small- and mid-cap counterparts, the blue-chip technology companies tend to be market movers based on their disruptive innovations.
With the internet and technology impacting most industries, companies in this space have outperformed large-cap companies in general over the past year. This is evidenced by the Nasdaq Composite’s 63.7% gains over the past year compared to S&P 500’s 48.8% returns over this period. Technology (or internet) giants Facebook, Inc. (FB), Netflix, Inc. (NFLX), and Baidu Inc. (BIDU) are among Wood’s top picks to capitalize on the impending technology revolution. We think their solid fundamentals and industry tailwinds make these stocks good bets for individual investors also.
Facebook, Inc. (FB)
As the world’s biggest social media platform, FB is known for its aggressive acquisition strategies and is the owner of some of the most popular communication and media platforms. Wood owns 310,465 shares of FB, which translates to a 0.21% weighting . Wood has been consolidating her holdings in the stock to Ark Fintech Innovation ETF (ARKW). She recently closed her position in the stock in Ark Next Generation Internet ETF (ARKF). Wood has a marginal stake of 0.01% in FB.
FB’s revenues have increased 48% year-over-year to $26.17 billion in the first quarter, ended March 31, 2021. This can be attributed to a 46% rise in advertising revenues, and a 148% rise in revenues generated from its “Other” segment. The company’s quarterly income from operations was $11.38 billion, up 93% from the prior year quarter. Its net income rose 94% from the same period last year to $9.50 billion, while its EPS improved 93% from the year-ago value to $3.30.
FB hit its $331.81 52-week high on April 29, following its first quarter earnings release. The stock has gained 60.7% over the past year, and 19% year-to-date.
FB’s consolidated social media platform, which includes Instagram and communications platform Whatsapp, were the major contributors driving the company’s growth over the past year. With most businesses shifting online, FB’s advertising segment grew significantly over the past year. The company has been venturing into augmented and virtual reality, commerce and creator sectors through aggressive investments and research and development. These developments are expected to shape FB’s performance in the months to come.
A $2.81 consensus EPS estimate for the second quarter, ending June 2021, indicates a 56.1% rise year-over-year. FB has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. Analysts expect the company’s revenues to rise 57.2% from the same period last year to $27.35 billion for the current quarter.
It’s no surprise that FB has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and Sentiment. Of the 71 stocks in the Internet industry, FB is ranked #5. In addition to what we’ve highlighted, one can check out FB Ratings for Growth, Momentum, Value, and Stability here.
Netflix, Inc. (NFLX)
NLFX is the largest streaming and entertainment platform in the world, with 208 million subscribers. The company climbed 33 spots within one year and is ranked #164 in the 2020 Fortune 500 list. The investor favorite FAANG stock is ranked #9 in Fortune’s “World’s most admired companies” list, and #5 in the 100 fastest growing companies. Wood has been investing in NFLX through ETFs ARKW and ARKX and has a combined holding of 202,918 shares. The stock has a combined 0.21% weighting in the funds, translating to a #97 weighted rank.
NFLX’s revenues came in at a record $7.16 billion for the first quarter, ending March 2021, up 24.2% year-over-year. The company’s global streaming paid memberships increased 13.6% from the same period last year to $207.64 million, which drove its revenue growth. Its operating income improved 104.6% from its year-ago value to $1.96 billion. Its quarterly net income stood at $1.71 billion, representing a 140.8% improvement year-over-year. Its EPS increased 138.9% from the prior year quarter to $3.75.
NFLX expects its free cash flow to break even in 2021, thereby eliminating the need to borrowing for its working capital needs. The company redeemed its senior bond expiring February 2021 in the fiscal first quarter, shrinking its total debt to $15.70 billion. These developments combined should reduce the company’s debt and interest burden significantly.
NFLX approved a $5 billion share buyback program this year. This should increase the company’s EPS substantially in the coming months.
The Street expects NFLX’s EPS to rise 98.1% year-over-year to $3.15 in the current quarter (ending June 2021). The company’s revenue is expected to come in at $7.32 billion for the quarter, up 20.3% from the same period last year.
NFLX has gained 23.7% over the past year to close Friday’s trading session at $513.47. It hit its all-time high of $593.29 on January 20.
NFLX’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment and Quality also. It is ranked #9 in the Internet industry.
In total, we rate NFLX on eight different levels. Beyond what we’ve stated above, one can view additional NFLX Ratings for Growth, Value, Momentum, and Stability here.
Baidu Inc. (BIDU)
BIDU is often called China’s “Google” because the internet search provider dominates the world’s most populous country. The company has been expanding its operations into artificial intelligence, cloud computing and autonomous driving for some time. Its immense market reach and growth potential presumably attracted Wood, who held approximately 4.50 million BIDU shares as of April 30. The stock has a combined 2.06% weighting across ARKK, ARKW, and ARKQ, translating to a #9 weighted rank across all funds. Wood has a 1.76% stake in the company.
BIDU’s revenues were $4.64 billion for the fourth quarter, ended December 31, up 5% year-over-year. Its non-GAAP operating income rose 4% from the same period last year to $1.08 billion, while its adjusted EBITDA improved 5% from the year-ago value to $1.31 billion.
BIDU launched driverless robo-taxi services in Beijing yesterday, marking a milestone in the autonomous driving industry. It is the first Chinese company to commercialize autonomous driving technology.
Last month, BIDU announced a global offering of 95 million shares, raising approximately HK$23.94 billion. The company plans to use the proceeds for research and development on innovative technologies and commercialization of its artificial intelligence innovations.
Shares of BIDU hit their $354.82 all-time high of $354.82 on February 22. However, the stock has declined 2.7% year-to-date.
Analysts expect BIDU’s EPS to rise 33.3% year-over-year to $1.68 in the about-to-be-reported quarter, ended March 2021. Also, the company beat the consensus EPS estimates in each of the trailing four quarters. A $4.21 billion consensus revenue estimate for the fiscal first quarter indicates a 30.7% rise from the year-ago value.
BIDU has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Growth and Value. Furthermore, it is ranked #9 of 79 stocks in the China group.
We have also graded BIDU for Momentum, Sentiment, Stability, and Quality. Get all BIDU Ratings here.
Click here to check out our Software Industry Report for 2021
FB shares were trading at $323.20 per share on Monday afternoon, down $1.88 (-0.58%). Year-to-date, FB has gained 18.32%, versus a 12.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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