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2 of Cathie Wood's Favorite Stocks That Still Have More Downside

Cathie Wood’s ARK ETFs are significantly down this year. Wood’s holdings Roblox (RBLX) and Invitae (NVTA) have plunged over the past few months and we believe more downside in the months ahead.

Cathie Wood, the founder and CEO of investment company ARK Invest rose to widespread Wall Street popularity in 2020, after her flagship fund ARK Innovation ETF (ARKK) provided investors 153% in returns, as opposed to the S&P 500’s returns of 18% over the year. However, given Wood’s preference for high growth, speculative stocks, each one of the Ark Invest funds is down in 2022, with the average investor in five ARK ETFs sitting on a 27% loss.

Rising interest rate forecasts have hit the tech sector, and Wood’s ‘disruptors’ have not been spared. ARKK dropped 23% in 2021 and is down 22% in 2022.

As of January 21, Roblox Corporation (RBLX) has a 0.78% weightage in ARK Invest ETFs, and Invitae Corporation (NVTA) has a 1.1% weighting. These stocks have slumped significantly over the past few months and are likely to retreat further, given their weak fundamentals.

Roblox Corporation (RBLX)

RBLX is an online entertainment platform developer and operator that offers Roblox Client, an application enabling users to explore the 3D digital world, and Roblox Studio, a toolset that allows developers to create and publish content. The company went public by listing its Class A common stock on the New York Stock Exchange on March 10, 2021.

On October 27, RBLX announced the pricing of the $1.0 billion aggregate principal amount of its 3.875% Senior Notes due 2030. The Senior Notes might create a debt burden for RBLX.

For the fiscal third quarter ended September 30, RBLX’s total costs and expenses increased 93.4% year-over-year to $586.78 million. Loss from operations and net loss attributable to common stockholders rose 50.3% and 52.2% from the same period last year to $77.45 million and $74 million, respectively.

The consensus EPS estimate of a negative $0.14 for the fourth quarter of 2021 indicates a 27.3% year-over-year decrease. Moreover, RBLX has missed consensus EPS estimates in three out of the trailing four quarters.

The stock has declined 5.6% over the past six months and 23.6% over the past month to close yesterday’s trading session at $75.39.

RBLX’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RBLX has a Stability grade of F and a Growth, Value, and Sentiment grade of D. In the 22-stock Entertainment – Toys & Video Games industry, RBLX is ranked #18. The industry is rated D.

Click here to see the additional POWR Ratings for RBLX (Momentum and Quality).

Invitae Corporation (NVTA)

NVTA operates as a medical genetics company that integrates genetic information for healthcare decision-making by clinicians and patients globally. The company’s offerings include genetic tests in various clinical areas, such as hereditary cancer, cardiology, metabolic conditions, and rare diseases.

On September 7, NVTA announced that it has entered into a definitive agreement to acquire patient-centric consumer health tech company Ciitizen. The acquisition should create opportunities for the company. However, it was expected to result in $325 million of cash and common stock outflow.

NVTA’s non-GAAP cost of revenue increased 75.7% year-over-year to $73.66 million in the fiscal third quarter ended September 30. Non-GAAP net loss and non-GAAP net loss per share rose 115.4% and 30.6% from the prior-year quarter to $175.92 million and $0.81, respectively.

Analysts expect NVTA’s EPS to decrease 15.9% year-over-year to a negative $0.73 for the fiscal fourth quarter ended December 2021.

Over the past year, the stock has declined 79.9% to close yesterday’s trading session at $11.45. It has declined 60.9% over the past six months.

NVTA’s poor prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our POWR Rating system.

NVTA has an F grade for Sentiment and a D grade for Value, Momentum, Stability, and Quality. It is ranked #57 out of the 59 stocks in the Medical – Diagnostics/Research industry. The industry is rated D.

To see the additional POWR Rating for Growth for NVTA, click here.

RBLX shares were trading at $71.00 per share on Friday afternoon, down $4.39 (-5.82%). Year-to-date, RBLX has declined -31.17%, versus a -6.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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