Cathie Wood had an amazing run in 2020. Her family of growth-oriented exchange-traded funds (ETFs) under the Ark Invest banner has fallen on hard times over the last 18 months. Wood isn't giving up. She's still adding and subtracting to her funds. What is she buying now?
Wood added to her existing positions in Unity Software (U -5.50%), Exact Sciences (EXAS 0.12%), and Twilio (TWLO -1.97%) on Wednesday. Let's see why she's building up her stakes in these three names.
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Unity Software
Wood's most common purchase on Wednesday was Unity Software, the content creation platform provider. She increased her position in four of her five largest ETFs.
The reason for the shopping spree is clear. Unity Software stock was plunging on Wednesday after the company announced a poorly received acquisition, and Wood has made the mistake of chasing many of her holdings lower as she tries to buy the dip. Unity Software announced an agreement to buy ironSource (IS) in a stock deal initially valued at $4.4 billion.
The market didn't appreciate Unity paying a hefty premium for ironSource with its already depressed stock, sending its shares 17% lower on Wednesday. To be fair, the market hasn't really liked pretty much anything out of Unity Software these days. The stock has shed 75% of its value since peaking in November.
Unity Software has rattled off three consecutive years of better-than-42% annual growth, but the near-term outlook is problematic. The company dramatically lowered its revenue guidance for this year in May. Unity Software's transition from a gaming industry tool to a platform now also useful to movie studios, architects, and graphic designers has run into some growing plains.
Exact Sciences
Another purchase for Wood on Wednesday was Exact Sciences, the company behind at-home colon cancer screener Cologuard and multicancer test CancerSEEK. You can't judge Exact Sciences by its current financial state. Analysts see at least another four year of losses for the company.
Exact Sciences is doing important work, as early detection of cancer is the best way to give patients a fighting chance to survive. It did catch a break last week when the Centers for Medicare and Medicaid Services unveiled its 2023 physician fee schedule proposal. If it's adopted, it would eliminate the cost for Medicare patients to have a follow-up colonoscopy after a positive at-home colorectal screening test like Cologuard.
Twilio
Let's close with Twilio. If you think Unity Software investors have had it rough with its 75% plunge from peak levels, Twilio's shares have fallen 81% since hitting new highs early last year. Twilio is a leader in in-app communication solutions. It makes your smartphone apps smarter, able to seamlessly communicate between two parties to make applications more interactive and useful.
There's obviously heavy demand for in-app communication solutions. Revenue rose 48% in Twilio's latest quarter. Even if you back out a 2021 acquisition that's padding the top line, you still have better-than-expected 35% organic growth. The bottom line has been less impressive, but it's not the right measuring stick for Twilio at this stage of its growth cycle.
Scotiabank initiated coverage of Twilio with a bullish outperform rating last month. Analyst Nick Altmann's price target of $215 implies 153% of upside from its current level. A lot of Wall Street pros have gotten burned putting out lofty price goals, but the point here is that Wood isn't the only one that sees a lot of upside from today's buying opportunity.
Unity Software, Exact Sciences, and Twilio may be out of favor right now, but they still are growth stocks worth watching. We'll have to see if Wood's penchant for sinking stocks finally starts to pay off in the second half of this year.
