Robinhood Markets, Inc. (HOOD): Among Ark Invest’s Top 10 Stock Picks Now?

We recently compiled a list of Ark Invest Stock Portfolio: Top 10 Picks. In this article, we are going to take a look at where Robinhood Markets, Inc. (NASDAQ:HOOD) stands against Ark Invest's other stocks picks.

If there's one thing that can be said for sure, it's that Cathie Wood's investment approach is one of the most unique on Wall Street. In a finance industry dominated by long, short, value, and growth plays, Wood focuses primarily on high growth stocks which she and her firm believe hold the keys to the future. This has seen Ark Investment, whose latest SEC filings had a cumulative value of $14.4 billion, see some of its investments grow in triple digit percentages while others have floundered.

In fact, we analyzed the long term performance of Cathie Wood's top stocks as part of our coverage of 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood. This piece analyzed Wood and her firm's top 13F investments during Q4 2020 and checked their performance over the past three years. Out of these ten stocks, just one was in the green while nearly all others had lost most of their value or were down in red.

During this time, some of Wood's predictions on the economy also stood at odds with the general consensus among Federal Reserve officials and other members of the finance industry. As a recap, the Fed started to aggressively raise interest rates in 2022 as part of its efforts to combat inflation. This caused a lot of pain for growth investors like Wood, as technology stocks started to fall. In June 2022, which saw the Fed announce a 75 basis point hike, which was the largest since 1994, Wood admitted that she was wrong about inflation. This acceptance came after her remarks in October 2021 on social media, in which she disputed Twitter (now X) founder Jack Dorsey's assessment that the US economy was headed for hyperinflation. While Dorsey's worries turned out to be a bit too extreme as well, Wood countered by stating:

“In 2008-09, when the Fed started quantitative easing, I thought that inflation would take off. I was wrong. Instead, velocity - the rate at which money turns over per year - declined, taking away its inflationary sting. Velocity still is falling.”

She added that three factors would force deflation. These were technologically "enabled innovation" driving down costs and making businesses postpone their spending, over leveraged firms selling subpar goods at below market prices, and businesses over ordering in response to the pandemic. These factors led her to conclude that "once the holiday season passes and companies face excess supplies, prices should unwind."

Of course, as it turned out, prices in America shot to record high levels in October 2022 and devastated technology stocks in their wake. One of the worst hit sectors was the semiconductor industry, and had it not been for the popularity of artificial intelligence, then these stocks would have spent 2023 recovering from their record lows in the prior year.

Shifting gears to analyze Wood's performance in 2024, her flagship fund is down 10.95% year to date. This stands in sharp comparison to the S&P benchmark's and the tech heavy NASDAQ's 15.20% year to date appreciation. In fact, the latter index is made of 100 of the most valuable technology stocks, so the fact that Wood's flagship fund is down means that her focus on the extreme end of the innovation spectrum is still proving to be a bit too risky for a market that has dealt with the brunt of multi decade high interest rates over the past couple of years.

But what about stocks? Cathie Wood invests in a variety of stocks, ranging from video communications to gene editing and artificial intelligence. So perhaps some of her top stock picks of 2024 have done better during Q1 and Q2 as the market starts to comfortably price expectations for an interest rate cut in September. Well, the top five Cathie Wood stocks that you'll find out about more as you read through this piece are mostly down. Their performance is -6.57%, 49%, -33.8%, -15.90%, and -5.63%, respectively, with the only stock in the green belonging to a financial trading platform provider that has benefited from the growing market adoption of Bitcoin. For some cryptocurrency stocks that are seeing love from analysts, you can check out 11 Crypto Stocks with Biggest Upside.

While simply analyzing the year to date performance of her top five stocks is an easy way to form an opinion about Cathie Wood's latest investment strategy, we can also expand our focus to see which stocks she has positioned herself into as the Fed heads to an interest rate cuts. Insider Monkey's research shows that during Q2 2024, Cathie Wood bought eight new stocks. Additionally, she has also invested in an ETF linked to 7-10 year US Treasury bonds and two exchange traded funds (ETFs) linked to Ethereum. So, which stocks is Cathie Wood buying as the Fed nears an interest rate cut?

Well, out of the eight new stocks that she bought in 2024's second quarter, two belonged to the 3D printing industry (one of these ranked 4th in our coverage of the top 3D printing stocks), another is a healthcare play that claims to have "world's largest library of clinical & molecular data," followed by a cybersecurity stock, a digital promotions software provider, the 6th best SaaS stock to buy according to hedge funds, the 6th stock on this list which is another AI and software play, and the 3rd best undervalued stock to buy according to Reddit. Looking at their year to date performance, it is -33.42% and -77.7% for the 3D printing stocks, 8.99% for the healthcare play, and -6.49%, -35%, 2.47%, -7.49%, and -4.10%, respectively. As Wood would like to remind you, past performance is not an indicator of future returns, so whether she's positioning herself for a recovery in most of these stocks on the back of a lighter monetary and economic environment is up for you to decide.

Our Methodology

For our list of Ark Invest and Cathie Wood's latest stock picks, we picked out the ten most valuable positions from Ark Invest's Q2 2024 investment portfolio.

We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A successful business person confidently managing their finances on a mobile device.

Robinhood Markets, Inc. (NASDAQ:HOOD)

Number of Hedge Fund Investors  in Q1 2024: 26

Ark Investment Management’s Q2 2024 Stake: $434 million

Robinhood Markets, Inc. (NASDAQ:HOOD) is a financial services provider that enables retail users to trade equities and other securities. As of May 2024, the firm had 24 million funded customers, which leaves it with a lot of room to grow the user base. Robinhood Markets, Inc. (NASDAQ:HOOD) also has the early advantage in the retail investing market, which only truly started to stretch its muscles during the coronavirus pandemic and through the meme stock mania. However, Robinhood Markets, Inc. (NASDAQ:HOOD)'s main market is primarily cyclical in nature, which means that low inflation and economic growth are key for its fate. This was also evident during the first quarter, since as soon as retail investors' sentiment for the economy started to improve, its net revenue grew by 40% to sit at $618 million and lending it an average revenue per user (ARPU) of $103. This growth was also fueled by the rising acceptability of cryptocurrency, which is another favorite retail investor security.

Robinhood Markets, Inc. (NASDAQ:HOOD)'s management is also trying to grow high fee membership options to drive recurring revenue. Here's what it had to say about these during the Q1 2024 earnings call:

"We’re also delivering growth in Robinhood Gold. As a reminder of how Gold subscribers on average compare to our customers overall, in Q1, Gold subscribers had 8 times the [assets] (ph) with an average of over $40,000, grew net deposits roughly twice as fast, and had 5 times the retirement account adoption. Gold ARPU is also multiples of our average customer, which includes annualized recurring subscription revenue approaching $100 million. And in Q1, we grew Gold subscribers to 1.7 million, up 42%, or 500,000 from last year. This momentum has continued into Q2 as we added another 140,000 Gold subscribers in April, more than half of our Q1 growth. Let’s now turn to our financial results. In the first quarter, we generated net income of $157 million, up 5x sequentially as we grew revenues and stayed disciplined on expenses."

Overall HOOD ranks 6th on our list of Ark Invest's top 10 stock picks. You can visit Ark Invest Stock Portfolio: Top 10 Picks to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of HOOD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HOOD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.