Is Cathie Wood's ARKK Innovation Fund Sinking?

Cathie Wood’s ARK Innovation Fund (ARKK), which is essentially a basket of some of the most speculative high-growth tech stocks, took a massive hit to the chin this week. The drop Read More... The post Is Cathie Wood's ARKK Innovation Fund Sinking? appeared first on TipRanks Financial Blog.

Is Cathie Wood's ARKK Innovation Fund Sinking?

Cathie Wood’s ARK Innovation Fund (ARKK), which is essentially a basket of some of the most speculative high-growth tech stocks, took a massive hit to the chin this week. The drop further punished beginner investors who chose to double down on the biggest winners of 2020. 

Undoubtedly, the market has been unforgiving to many market newcomers who chose to chase performance in hot investments like ARKK. Rather than hand-selecting stocks with wide margins of safety that were priced well below their true worth, investors were drawn in by ARKK's promise of high growth.

With the tables now turned, value is outshining growth in a big way. Some investors are learning a hard lesson: chasing past performance can be a dangerous game.

As that famous warning expresses so succinctly, “Past performance is not indicative of future results.”

Speculative Tech Wreck

In 2021, the market served up an unforgiving growth-to-value rotation. Climbing bond yields and inflation jitters sent shockwaves through the market back in the first quarter, sending shares of many growth darlings lower. 

The higher the growth—and the more expensive the name—the harsher the penalty.

The shockwaves from the speculative tech wreck were not felt evenly across the market, though. Many value investors still insisted on margins of safety over growth at any price. They likely did not feel the pain that other investors contended with in recent months.

While the broader Nasdaq 100 was quick to climb back from its first-quarter correction, some of the more speculative growth stocks remain considerably off from their highs.

Cathie Wood's ARKK ETF is Sinking

Cathie Wood’s ARKK ETF has felt the brunt of the damage amid speculative tech's latest bout of weakness. Wood’s innovation-focused fund put the S&P 500 to shame last year, but now, her funds are under considerable pressure. They could be at risk of surrendering even more of last year's impressive gains that put the ETF on the map.

The wildly popular ARKK ETF now finds itself down around 33% from its February 2021 all-time high. Those who picked funds and stocks based on past performance, were dealt a significant blow. Furthermore, there is no telling how much lower ARKK and speculative tech will sink. ARK funds are no longer amplifying the downside in the Nasdaq 100; it’s moving lower on its own trajectory. 

Cathie Wood seems unrattled by recent weakness in speculative tech. In fact, she’s treating the sell-off in growth stocks as a great opportunity to buy more shares of her favorite companies. Recently, Wood capitalized on one of the worst weeks for social media stocks by picking up 1.3 million shares of Twitter (TWTR), while they were fresh off a 15% plunge.

Nobody knows if Wood’s ARK funds will sink to their early 2020 lows or recover alongside the less speculative basket of profitable growth stocks featured atop the Nasdaq 100.

In any case, Cathie Wood is staying the course. As she continues to double down on the most battered of speculative tech stocks, ARKK could stand to ricochet massively once growth hits bottom.

Is it Wise to Follow Cathie Wood?

As the discrepancy between ARKK and the Nasdaq 100 widens amid growth’s latest pullback, Cathie Wood fans and courageous beginners would be wise to grasp a full understanding of the downside risks.

That said, just because a stock’s valuation metrics are high does not necessarily mean it’s ridiculously overvalued.

Some of the oversold growth names may actually be undervalued relative to their long-term growth prospects, even considering the likelihood of much higher rates over the medium-term. That's what Cathie Wood is betting on, as she continues buying hard-hit tech while others sell.

Wood may be right in her aggressive buying spree strategy right now. Just be ready to average down in the case of a future price drop.

Disclosure: Joey Frenette held no position in any of the stocks or ETFs mentioned in this article at the time of publication.

DisclaimerThe information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post Is Cathie Wood's ARKK Innovation Fund Sinking? appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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Palantir Stock: This One Could Require Some Patience

Palantir Technologies (PLTR), which is a top provider of analytics and AI (artificial intelligence) services and technology, saw its stock drop ten days in a row prior its earnings report Read More... The post Palantir Stock: This One Could Require Some Patience appeared first on TipRanks Financial Blog.

Palantir Stock: This One Could Require Some Patience

Palantir Technologies (), which is a top provider of analytics and AI (artificial intelligence) services and technology, saw its stock drop ten days in a row prior its earnings report this past week.

Of course, this is nothing new for high-growth stocks lately. Wall Street has been dumping most of these securities.

Palantir stock did get some relief when it reported its Q1 results on May 11. On the news, shares jumped nearly 10% to $20.21. 

Yet it was not able to hold on, and the stock price has since sunk to around $20, bringing the market capitalization to $37 billion.

Q1 Results

So, let’s get a rundown on the Q1 numbers. The company reported a net loss of $123 million or 7 cents a share. On an adjusted basis, the earnings per share was 4 cents, which was in-line with the consensus forecast. 

As for revenues, they soared 49% to $341.2 million, which handily beat the Street estimate of $332 million. The biggest driver was the U.S. government business, which saw an 83% spike. (See Palantir Technologies stock analysis on TipRanks)

Note that when Palantir was founded – back in 2003 – the focus was generally on contracts for the CIA and the Defense Department. However, over the past decade, the company has been moving more aggressively into the commercial sector. In Q1, commercial segment revenues were $133 million.

Something else to consider about the quarterly results: Palantir said that it will accept Bitcoin from its customers and might even add this digital asset to its balance. As seen recently with Tesla (), this may prove to be a challenge. Tesla recently indicated it will no longer accept Bitcoin for orders because of concerns about the environmental impact of the digital mining.

Palantir's Technological Advantage

Palantir generally caters to larger enterprise customers, as the average revenue per customer is about $8.1 million. In fact, the top 20 customers are at a hefty $36.1 million.

Additionally, the company has been able to scale its operations with proprietary technologies. The latest offering is Apollo for Edge AI. Launched in April, it is already getting traction. At the heart of this system is micro models, which are similar to microservices that allow for modern cloud computing. The technology essentially makes it much easier and more effective to deploy AI models across complex environments. 

This technology holds enormous potential. For example, it can allow for the automation of factories, the use of sensors on oil rigs or even applications in space. All in all, Apollo for Edge AI should expand the company’s addressable market opportunity.  

Wall Street’s Take

Turning to the analyst community, the consensus rating is a Hold, with 2 Buys, 3 Holds and 4 Sells logged over the past three months. The average analyst price target is $21.75, which implies 8.3% upside potential.

Bottom Line on Palantir

Palantir has built a powerful platform and is positioned to benefit from the secular trend of AI. Few companies have a similar level of experience, set of strong technologies and team of data scientists.  

On the other hand, in today’s environment, Wall Street is not particularly interested in growth plays – especially those with high valuations. Consider that Palantir is trading at about 17 times sales, even with the recent drop-off in the stock price.

Therefore, it may be best to hold off and wait for things to settle before making a purchase.

Disclosure: Tom Taulli does not have a long or short position in Palantir stock.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post Palantir Stock: This One Could Require Some Patience appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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