Why Cathie Wood Has Gone Sour On Amazon Stock

Cathie Wood’s ARK Fintech Innovation ETF has shed more than half of its Amazon position in the past five months. The Amazon Maven explains why.
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Amazon stock  (AMZN) - Get Report climbed another inch on Wednesday, July 14. After its 14% rally since the start of June, AMZN is now only three percentage points short of the S&P 500’s year-to-date gains in 2021, after trailing the index by quite a bit for the first five months of the year.

But amid bullishness, something has caught my attention: ARK Invest, the money manager firm headed by famed investor Cathie Wood, has trimmed its (already small) position on Amazon stock since its ETFs peaked, earlier in Q1.

The Amazon Maven explains why ARK might be even less bullish on AMZN now than it already was.

Figure 1: Cathie Wood, ARK Invest CEO.

Figure 1: Cathie Wood, ARK Invest CEO.

(Read more from the Amazon Maven: This Is A Top Reason To Sell Amazon Stock)

Growth? Think again

For most investors, Amazon falls squarely within the growth category of companies and stocks. The cloud and e-commerce giant’s revenues are projected to rise from less than $400 billion last year to over $1 trillion in five years. EPS should increase fivefold during the same period, according to analysts.

But Cathie Wood and her team would probably not see these growth numbers as good enough reasons to add AMZN to their portfolios. As ARK searches for disruptive innovators that may become “the next Big Tech”, Amazon and its FAAMG peers have been relegated to the status of cash equivalents.

Ms. Wood explained, in May 2021, why Amazon or Apple are akin to cash on the sidelines, and what might convince her to buy more of them:

“What would encourage us to move [into Amazon and the alike] is our valuation becoming stretched beyond our minimum hurdle rate of return. We would move back into some of the FAAMGs because we would be treating them essentially as cash-like instruments for our strategy.”

AMZN position: from small to minimal

One thing seems clear: when it comes to AMZN at least, ARK Invest’s portfolio moves have been consistent with the idea above. Look at the chart below – and keep in mind that only ARK Fintech Innovation ETF (ARKF) holds substantial amounts of AMZN, valued today at nearly $50 million.

Figure 2: Shares of AMZN in ARKF.

Figure 2: Shares of AMZN in ARKF.

  • Shares of AMZN in ARKF in October 2020: 7,400
  • Shares of AMZN in ARKF in February 2021: 29,400 (+300% in position size)
  • Shares of AMZN in ARKF in May 2021: 12,500 (-57% in position size)

ARK held on to fewer Amazon shares in October 2020, when ARKF had yet to climb nearly 50% to the all-time high of February 2021. By early this year, when growth valuations looked arguably stretched, ARKF increased its AMZN position (a.k.a. “cash equivalent”) by 300% to nearly 30,000 shares.

It was not until May 2021 that the ETF’s Amazon position was trimmed sharply to 12,500 shares, where it remains today. This happened as ARKF corrected 30% from peak to valley, possibly opening a window of opportunity into other mega-growth stocks that the investment firm tends to favor.

What stocks does Cathie Wood like?

Price action and valuations seem to explain why Cathie Wood and company have gone sour on Amazon stock lately. It is not a matter of liking or disliking the Seattle-based behemoth, but a question of where the best opportunities lie, in ARK’s point of view.

During her Wednesday after-hours interview on CNBC, Cathie Wood named some of her highest conviction calls today: Tesla, Roku, Square, Zoom, Shopify and Teledoc. These stocks, according to her, are more likely to be winners over the long haul than mere pandemic momentum plays.

(Read more from Amazon Maven: AMZN: Sprinting Ahead Of The S&P 500)

Twitter speaks

Cathie Wood’s ARK Fintech ETF trimmed its Amazon position by a whopping 57% between February 2021 and now, likely to take advantage of opportunities elsewhere in the growth universe. Would you have done the same?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)