2 Stocks Cathie Wood is Buying on the Dip

The CEO and founder of Ark Invest, Cathie Wood has risen to become one of the most influential asset managers on Wall Street. Wood is known for making bold predictions on disruptive and innovative companies.

In 2020 during the pandemic, the Ark Invest Innovation ETF (ARKK) delivered a spectacular performance, with an 152.52% return on the year. 

Today, we will analyze two stocks Cathie Wood has been buying more of on the market’s recent dip. Both stocks are industry leaders in their respective markets: Coinbase Global Inc. (COIN) and Draftkings Inc. (DKNG).

Coinbase Global Inc. (COIN)

Coinbase Global, Inc. is a financial technology company that provides end-to-end cryptocurrency infrastructure and technology. Its platform enables approximately 43 million retail users, 7,000 institutions, and 115,000 ecosystem partners in over 100 countries to participate in the crypto market. For retail users it offers primary financial accounts to invest, store, spend, earn and use crypto assets. It provides a one-stop shop for hedge funds, money managers, and corporations for accessing crypto markets through advanced trading and custody technology.

Since its listing in April, COIN shares have dropped 30.7%, after it reached a high of $429.54 per share on its first day of trading.

The crypto company makes most of its money on Bitcoin and Ether trading but is also developing other cryptocurrencies and assets. Since its listing, the stock has been volatile due to high volatility in the crypto markets. However, high volatility in Bitcoin and Ether means higher earnings for COIN.

The company provides developers, merchants, and asset issuers a platform with technology and services that enables them to build applications that leverage crypto protocols, participate in crypto networks, and securely accept cryptocurrencies as payment. 

The company is highly innovative and is well-positioned to benefit from the disruptive effects of the booming crypto market. Indeed, Cathie Wood is one of the largest shareholders of COIN with more than 5.5m shares, representing a total of 3.72% of COIN’s capital.  On September 20th, Cathie Wood bought 96,251 shares of COIN through two of her funds, ARKK and Ark Fintech Innovation ETF (ARKF).

Moreover, the consensus on Wall Street is a buy rating on the stock with 14 out of 21 analysts expecting an average 12 months target price of $333.66,  representing an upside of 48.1%.

COIN’s net sales surged in 2021, lifting more than 5x to $6.9b. Going forward, analysts are expecting a moderate decline in COIN’s top line in 2022, down 11% year-on-year to $6.17b.

In terms of bottom line, The company is expected to lose traction. In 2022, analysts expect a sharp decline of COIN’s bottom line down 57% to $1.29b, which represents a compelling net margin of 21%.

The company’s financial balance shouldn’t improve in the following years. According to the analysts’ expectation, COIN should lift its net cash position by 40.4% to $5.2b.

In terms of valuation metrics the company is trading at higher ratios with a 2022e P/E of 46.2x and a 2022e EV/EBITDA of 17.7x

Draftkings Inc. (DKNG)

DKNG is a digital sports entertainment and gaming company, providing users with daily fantasy sports (DFS), sports betting (Sportsbook) and online casino (iGaming) products. DKNG offers users a single integrated product that provides one account, one wallet, a centralized payment system, and responsible gaming controls. The Company is also involved in the design, development, and licensing of sports betting and casino gaming software for its Sportsbook and casino gaming products. 

DKNG shares increased modestly since the beginning of the year, up 3.4% underperforming its benchmark, the Roundhill Sports Betting & iGaming ETF (BETZ), which surged 16.4%.

Cathie Wood has been investing consistently in DKNG in the past years, using pullbacks to add to their positioning. In September, she added about $40 million worth of DKNG shares, or nearly 760,000 shares, through her ARKK fund and ARK Next Generation ETF (ARKW).

In terms of financials, DKNG has consolidated its position in the gaming industry and is looking to acquire Entain, its British sports betting peer, which now revolves around a $22.4 billion cash and stock proposal. Analysts expect it to post a net increase in sales in 2021 Up more than 2x  to $1.2b. Going forward, the company should pursue its growth and post a top-line increase of  36.9% to 1.75b, as regulation in the gambling industry eases in numerous U.S. states. 

However, the company is burning a lot of cash and is not profitable. Analysts expect a net loss of $1.36b in 2021, that should moderately decline in 2022 to -$0.99b.

DKNG’s balance sheet is cash positive. The company has a net cash position of $1.27b in 2021, which is expected to decrease to $0.88b in 2022.

DKNG’s valuation metrics are stretched. The company has a 2022e EV/Revenue of 10.4x and a huge P/B ratio of 14.2x