Renowned investor Cathie Wood has made her name by betting against market trends. With more than $50 billion in assets under management (AUM), Wood can afford to sustain short-term losses in pursuit of big long-term gains. In contrarian investing, it often takes considerable time for an investment to deliver a desired return on investment. However, retail investors with limited access to capital might be forced to exit their positions in the short run and thus register losses on such bets…
With the U.S. economy making a faster-than-anticipated recovery, some of the most profitable stocks that gained on account of the COVID-19 pandemic have been witnessing a decline in revenues and earnings. Their share prices are declining too. While major billion-dollar businesses have witnessed a short-term pullback amid the impending economic recovery, they are expected to recover once markets stabilize post-pandemic. However, we think investors with limited funds should avoid investing in such stocks in April.
Thus, retail investors with relatively low risk tolerance should avoid Cathie Wood’s top picks Shopify Inc. (SHOP – Get Rating), Spotify Technology S.A. (SPOT – Get Rating) and Zillow Group, Inc. (Z – Get Rating), given these stocks’ weak near-term prospects of these stocks.
Canadian e-commerce giant SHOP is a holding in Wood’s Ark Innovation ETF (ARKK). ARKK is one of the most profitable ETFs managed by Ark Investments and holds approximately 657,450 shares of SHOP in its portfolio, representing a 3.3% weighting . SHOP has a weighted rank of #7 in ARKK, and a weighted rank of #6 across all Ark funds. The ETF has been buying shares of SHOP over the past six months. Ark Investments has a 0.59% stake in the company.
It should be noted, however, that SHOP’s impressive performance over the last year can be accredited to the pandemic’s tailwinds to the e-commerce industry. As the global economy recuperates from nearly a year of fragmented lockdowns and social distancing policies, consumers are likely to resume shopping at brick-and-mortar retail outlets. And as the vaccination drive picks up pace in the United States and Canada, SHOP’s revenues are expected to decline temporarily in the second quarter as outdoor activities rise. While the advantages of e-commerce shopping are expected to help SHOP retain its growth trajectory in the long run, the stock is expected to witness a temporary pullback this month.
SHOP’s revenues increased 94% year-over-year to $977.70 million in the fourth quarter ended December 31, 2020. However, the company’s cost of revenues increased 96.2% year-over-year to $504.39 million. This is because the cost of revenues from its “Merchant Solutions” segment more than doubled over this period. Its total operating income rose 33.3% from its year-ago value to $391.85 million. Also, the company’s total deferred revenues increased significantly in its fiscal year 2020.
Analysts expect SHOP’s EPS to decline 17.1% in the current quarter (ending June 2021), and marginally in its fiscal year 2021. The consensus revenue estimate of $4.08 billion represents a 39.4% improvement year-over-year. SHOP has gained 177.5% over the past year, and 9.7% year-to-date.
SHOP has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SHOP has an F grade for Value, and D for Stability. It is ranked #28 of 43 stocks in the D-rated Internet – Services industry. In total, we rate SHOP on eight different levels. Beyond what we’ve stated above, one can check out the additional POWR Ratings for Momentum, Sentiment, Growth and Quality here.
There are nine stocks in the Internet – Services industry with an overall rating of A or B. Click here to view them.
As one of the leading names in the global music and streaming industry, SPOT caught Wood’s attention last September. She began purchasing the stock to be included in two of her most popular ETFs, ARKK and Ark Next Generation Internet ETF (ARKW). However, following the release of the company’s financial reports for fiscal 2020, Wood has been selling SPOT shares. She has sold 302,407 shares of SPOT since March. She currently holds approximately 3.60 million shares of SPOT, having a combined weighting of 2%, with a weighted rank of #9 across all funds. Ark currently has a 1.89% stake in the company.
SPOT generated €2.17 billion in revenues in the fiscal fourth quarter ended December 31, 2020, up 17% year-over-year. This can be attributed to a…
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