In every billionaire’s stock portfolio, one stock rises to the top. It’s the one the billionaire has most conviction in and represents the largest portion of their holdings. For Warren Buffett, that stock is Apple, which represents 40% of his stock portfolio.
Peering under the hood further, the top 3 stocks of any portfolio are highly revealing about where the investment manager believes the world is headed. For Buffett, those three are Apple (40.7%), Bank of America (10.4%) and Coca Cola (8.3%). It’s not surprising that Buffett is sticking with the tried-and-tested companies that have proven themselves over decades through boom and bust cycles.
On the other hand, Cathie Wood of ARK Invest, is known to be much more adventurous. She doesn’t buy into what has worked previously as much as she bets on what innovations will disrupt the world going forward? What are her 3 top stocks?
Tesla
It’s not surprising that Tesla (NASDAQ:TSLA) represents the largest single holding (7%) among ARK Invest funds. After all, Cathie bet big on Tesla before it was fashionable and enjoyed 10x gains already.
She’s not willing to pin her badge of victory to the wall and move on though. As more gigafactories come online and production ramps up to meet extraordinary demand (wait times are over a year for some Tesla models), Cathie is forecasting Tesla to reach as high as $1,500 per share within the next 4 years. That’s a 5x increase over where the share price currently sits.
Just as her price target for Tesla was outlandish relative to Wall Street’s consensus when Tesla was a $60 billion company (before running up to a trillion dollar market capitalization), so too are her current estimates high compared to the current consensus of $330.
Will she be right and the Street wrong again?
Cathie is betting on a “threefer”:
- Autonomous driving technology will become mainstream
- Tesla will successfully roll out a ride-hailing offering
- Gigafactories will continue to come online
If Tesla does roll out a fleet of Uber-like taxis, albeit self-driving, ARK forecasts as much as $486 billion in revenue by 2026, which by any stretch of the imagination seems optimistic given 2023 is right around the corner – the infrastructure to scale this rollout, even if the technology were production-ready today, is unlikely to get built over that time frame.
More likely, Tesla will ramp up to ten gigafactories and scale its current production to the forecast 20 million cars by 2030. If she’s right and Elon Musk, CEO of Tesla, is correct too, the combination of these initiatives will create a moat so wide that a sustainable competitive advantage will be created for years to come.
Roku
Another big holding of Cathie Wood’s is Roku, which comprises 5% of ARK Invest’s portfolio.
As with Tesla, Wood is projecting astronomical growth rates for Roku. Her bet is that Roku will top $600 per share by 2026, representing compound annual growth of over 50% annually from current levels. By contrast, for this year alone, analysts are betting on a more modest double-digit percentage growth rate of 12% to $80 per share.
It’s not entirely clear why ARK Invest is so bullish. The investment thesis seems to rely on more streaming hours per day and higher gross margins approaching 60% coming to fruition.
With the stock price trading at just north of 3x sales, Roku certainly seems to be trading at bargain basement prices relative to its estimated growth rate. The company has some balance sheet advantages too: no debt and therefore insulation from Fed hikes. But it’s still a stretch to arrive at a 10x growth forecast.
Still, it’s not stopping ARK Invest from adding to its holdings; most recently bolstering its shareholding by another $17 million.
ZOOM
Last but not least, Zoom (NASDAQ:ZM) rounds out Cathie’s top 3 holdings, and represents 5% of ARK’s portfolio.
Though President Biden has officially declared the end of the pandemic, which catalyzed Zoom’s growth, ARK has a highly ambitious price target of $1500 per share by 2026.
ARK analysts forecast that the worst case condition for Zoom will be revenue growth of almost 8x to $30 billion over the next 48 months. The Street’s consensus is that these projections are far too lofty. Indeed over the next year analysts expect ZM share price to rise towards $95 per share.
It’s not clear whether ARK’s projections are considering the significant threat that stem from Microsoft Teams. Just as Slack’s rapid growth was cut quickly and early by Microsoft’s competing product, so too is there significant risk to Zoom from Microsoft.
So while Cathie Wood’s team is betting on Zoom rising more than 15x in the next 4 years, analysts consensus is for a more modest rise of about 13% annually.
