When there’s a market deluge, Cathie Wood is there trying to catch the drops in a bucket. The co-founder, CEO, and stock picker at Ark Invest had one of her busiest days of trading on Monday, when the market was plummeting. She added to two dozen of her existing positions, taking advantage of the lower entry points. Will her strategy work?
Wood kicked off the new trading week by building up her stakes in Amazon.com (NASDAQ: AMZN), Tesla Motors (NASDAQ: TSLA), and Tempus (NASDAQ: TEM). The shares fell 2% to 4% on Monday as part of the larger market sell-off. Let’s take a closer look.
1. Amazon
The leading online retailer’s 4% decline on Monday wasn’t pleasant for shareholders, but the past few weeks haven’t been a pleasure cruise, either. Amazon has now fallen 20% since hitting an all-time high last month.
The larger drop came on Friday of last week. Amazon stock fell 9% after the company posted poorly received financial results. Earnings per share nearly doubled to $1.26 in the second quarter, well ahead of the $1.03 analysts were targeting. There wasn’t a lot of surprise behind the surprise, as Amazon has topped Wall Street profit targets by a double-digit percentage in each of the past four quarters. Unfortunately for Amazon, that was pretty much the only good news in last week’s update.
Revenue rose 10% to $148 billion for the three months ending in June, just shy of analyst expectations. A 19% jump in its buoyant Amazon Web Services segment was weighed down by a 9% increase in North American e-commerce sales and a 7% gain for its smaller international business.
Image source: Getty Images.
Amazon’s outlook is also a sore spot for the market. It sees net sales rising 8% to 11% in the the third quarter. The midpoint is below the nearly 11% year-over-year jump Wall Street pros were targeting. Amazon also sees its operating income growth slowing substantially from previous quarters.
The stock is intriguing here. Revenue growth is slowing. This is shaping up to be the third consecutive year of top-line growth of less than 12%, the three worst years of its 27-year trading history. Amazon is feeling pretty mortal now. It’s facing Chinese e-commerce players that are growing quickly, and brick-and-mortar chains are getting smarter about drumming up digital sales. A potential recession won’t help, either.
Against this backdrop, bottom-line forecasts keep inching higher. Amazon’s shrinking price finds it trading at 34 times this year’s projected earnings and less than 28 times next year’s estimate. These are rich multiples for an e-commerce company growing net sales at a much slower and slowing pace. However, Amazon deserves a rich market multiple given its dominant market position and its high-margin AWS business.
2. Tesla Motors
Tesla is the largest holding of Wood’s largest fund, accounting for 14% of the assets of the Ark Innovation ETF (NYSEMKT: ARKK). With Tesla shares down 20% so far this year, they’re playing a role in why Ark Innovation is losing to the market for the third time in the past four years.
There are growth challenges for Tesla right now. Revenue rose just 2% in its latest quarter, and that was with its energy generation and storage business doubling over the past year. Its flagship auto segment saw its sales dip 7%. A 5% decline in vehicle deliveries and lower average selling prices resulted in a much bigger hit on overall profitability.
Tesla remains the leader in its niche. Some of the more aggressive growth models may need to be pared back, particularly those that assumed the prices for Tesla vehicles and premium offerings like its full-self driving platform have moved lower, not higher, over the past year. Is Tesla a richly valued automaker or a bargain tech company? Wood would agree with the latter, and it’s why she was a buyer on Monday.
3. Tempus AI
Some IPOs are more volatile than others, and Tempus AI has been a bucking bronco since going public in mid-June. The stock has traded as low as $22.89 a week after its market debut. It peaked at $47.09 just last week. It’s now trading near its original IPO price of $37.
Tempus AI isn’t short on ambition. It’s working on practical applications of artificial intelligence (AI) in healthcare. Its goal is to improve the treatment and outcome of patients using generative AI to deliver intelligent diagnostics. Nearly two-thirds of U.S. academic medical centers and half of oncologists are now connected to Tempus AI.
You won’t have to wait long to check out Tempus AI’s first quarter as a public company. It will announce fresh financials after Tuesday’s market close.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
