Cathie Wood's fund is collapsing | Here's what stocks she owns

Kathy Wood became a household name in 2020 and 2021 by making her investors billions of dollars. She was even able to outperform legendary investor Warren Buffett. Her flagship Arc Innovation fund returned a staggering 152% in 2020. Compare that to Warren Buffett's Berkshire Hathaway stock, which had a return of just 2.4 percent that same year. This means that Kathy Wood outperformed Buffett by a factor of 63. Yeah, I said that right; she outperformed the king of investing by a factor of 63.

Kathy Wood was flying high; every stock she picked skyrocketed. It seemed as if she could do no wrong as she gained a legion of millions of loyal followers. But things changed, and pretty quickly. Her fund peaked out at nearly 160 dollars per share last year, but now her fund is trading at just 35 a share. That's a decline of 80% from her peak. So this brings us to the billion-dollar question: Is this the end of Kathy Wood, or is it a once in a generation buying opportunity? Well, we're about to find out.

In this video, we're going to take a look at Wood's six largest positions in her portfolio. Let's take a look at what stock she owns, and who knows, you might just find a stock that you want to include in your own portfolio. The largest position in the Arc Innovation portfolio is Zoom Video Communications, ticker symbol ZM. This stock makes up nearly 10 percent of Wood's entire fund, and the stake is currently valued at nearly 700 million dollars. Zoom has a market cap of 23.5 billion dollars and currently trades at a P/E ratio of 21 times.

So as a quick aside, it may not seem like it, but a stock making up 10 percent of a professional investor's entire fund is actually very unusual. Many funds have rules in place that say the largest position in a fund can make up no more than five percent of the total fund. The top 10 holdings in Wood's portfolio make up nearly 60 percent of her entire portfolio, and this means Kathy Wood is betting big on a select few stocks. Her biggest single bet is Zoom.

Zoom is a software tool used for video meetings. As you became quite familiar with the product these past couple of years, Zoom was probably the biggest winner from people working and learning from home. The company grew by a staggering 326 percent during 2020. Yes, you heard that right: 326% growth in just one year. And it's not like this was a small company to begin with; Zoom was able to grow from 622 million dollars in revenue in 2019 to 2.65 billion in 2020.

Probably the most impressive part of this astronomical growth is that Zoom was able to grow profitably. Most companies that grow that fast need to spend a ton of money to keep up with that growth, and as a result are not profitable. Not Zoom. Zoom did 680 million dollars in profit and generated 1.4 billion dollars in cash flow during 2020. The fact that Zoom is highly profitable actually makes it unique among the group of stocks Kathy Wood owns.

The majority of companies in the Arc Innovation portfolio fall into the category of what has come to be referred to as profitless growth companies. These are companies that have been growing rapidly but are losing a ton of money, and this group of companies saw their stock prices skyrocket last year but have since seen major price declines. Despite being solidly profitable, Zoom hasn't fared much better. Zoom stock is down over 85 percent from its highs, and this is because investors are worried about competition.

There are many companies that are offering video conferencing software to customers, the largest of which is Microsoft. Microsoft is giving away its Teams video conferencing software for free when customers purchase its other software products, and there is a concern that these free video conferencing products are going to displace Zoom. Given how large of a position it is in the Arc portfolio, Kathy is betting that that won't happen.

Before we get into the next stock in Kathy Wood's portfolio, I want to quickly tell you about Stonk Tech, the sponsor of today's video. Stonk Tech is a community where like-minded investors can connect to share tips, successes, strategies, and everything in between. Content on the platform consists of both long-form and short-form videos to help you learn more about investing. In addition, there's a ton of free tools that normally cost hundreds of dollars — all for free. Download the app using my personalized invitation code, which is on the screen and in the description. Remember, it's completely free!

Now back to the video. Okay, so the second largest position in Kathy Wood's fund is Tesla, ticker symbol TSLA. Tesla stock makes up nine percent of her portfolio, and the stake is currently worth 630 million dollars. Now, Tesla has a market cap of 650 billion and trades at a P/E ratio of 63 times. This is probably the most polarizing stock here on this list.

It seems like there are two types of people when it comes to Tesla stock. There's one group that thinks Tesla is extremely overvalued. They point out that Tesla is currently worth more than Toyota, Porsche, Volkswagen, Mercedes-Benz, BMW, General Motors, Ford, Ferrari, Honda, and Hyundai combined. Take General Motors for example; in 2021, GM sold 6.3 million vehicles and GM also had 10.4 billion dollars in profit. Now, Tesla, on the other hand, sold 936,000 vehicles and had a profit of 5.5 billion dollars. Very impressive results by both companies; however, GM's market cap is currently 48 billion dollars, just under 8% of that of Tesla's.

This is why many people think Tesla is overvalued. On the other hand, we have people that think Tesla is extremely undervalued. Of course, one of those people is Elon Musk himself. On the latest Tesla earnings call, Musk said he thinks Tesla will soon be worth more than Apple and oil giant Saudi Aramco combined. With Apple's market cap of 2.3 trillion dollars and Saudi Aramco's at 2 trillion, this means Elon thinks Tesla could be worth 4.3 trillion dollars, and that means the stock would have to go up by a factor of seven from current levels.

The bull case for Tesla isn't that it's just a car company; the bold case is that it's a car company plus an energy company plus an artificial intelligence company plus a software company. Kathy Wood has a price target for Tesla stock of 1,500 per share after adjusting for stock splits. That means she sees a lot of upside from Tesla's current share price of around 200. And this hasn't been the first time she made a bold call on Tesla stock. In fact, her previous correct call on Tesla elevated her to a household name.

In 2018, Wood went on national TV and said Tesla stock would increase by a thousand percent. It was at a time when people thought the stock was already overvalued, and there were also questions about whether the company was on the verge of bankruptcy. People thought she was crazy for making such a bold call on Tesla; however, she turned out to be correct and she became an investment icon among many retail investors as a result. Will she be right on her Tesla call this time? Only time will tell.

The third largest position in Kathy Wood's fund is Roku, ticker symbol ROKU. Now, this position makes up 6.5 percent of the fund and is valued at 459 million dollars. Roku designs and manufactures consumer electronic products. Roku allows its users to watch thousands of different programs from a variety of streaming video services. The company makes its money from selling devices, advertising, and subscriptions. The company currently has a market cap of 7.2 billion dollars and it did over 3 billion dollars in sales in 2021 but is currently unprofitable.

This company was one of the biggest beneficiaries of the past couple of years. People ought to spend more time at home, so naturally, they spent a ton of time streaming their favorite content. Now that trend has reversed. This year, people are spending less time on streaming services such as Netflix, HBO Max, and Disney Plus. Netflix even started losing subscribers for the first time in more than a decade. This has happened even billionaire investor Bill Ackman lost hundreds of millions of dollars on Netflix stock as a result.

Roku stock has not been spared from the shifting consumer patterns. Roku stock is down 90% from its highs back in July 2021. Believe it or not, ARK Investment Management is actually the largest owner of Roku stock. ARK owns around 10% of the entire company. Given how much of the company she owns, Wood could have significant say in how the company is run; however, it appears that as of yet, she hasn't done so.

With the stock price where it's at, it will be interesting to see. On to stocks number four and five. I'm grouping these two together because they are both earlier stage biotech companies. Stock number four is Exact Sciences, ticker symbol EXAS. Now, this position is worth around 5.2 percent of the fund and is currently valued at 360 million dollars. The fifth largest position in the fund is Intellia Therapeutics, ticker symbol NTLA. This position makes up roughly 5 percent of the fund and is worth approximately 350 million dollars.

Both of these companies fall into the biotech industry, and it's very unusual to see an investor who doesn't specifically focus on biotech have two of her top five biggest positions be biotech stocks. These stocks tend to be extremely risky. This is because these companies tend to not have a lot of sales but spend a ton of money on research and development. If that research and development turns out to not be successful, investors are out of that money.

Look at Intellia Therapeutics as an example. The company has revenue of roughly 90 million dollars combined over the past two years, but during that same time, it has spent nearly 380 million dollars on research and development. This means the company spent more than four times what they did on sales in R&D. If that R&D turns out to be successful, the company can be worth tens of billions of dollars; however, things could just as easily turn out bad and the company could be worth zero dollars. That's why it's so rare to see these types of companies make up a large portion of an investor's portfolio.

Number six on our list of stocks is Block, ticker symbol SQ. This position makes up 4.6 percent of Wood's fund and is currently valued at 335 million dollars. Block is a financial services and digital payments company, probably better known by its former name, Square. Block's products essentially make it easier to transfer money and purchase products. Its flagship product, called Square, is a payments platform aimed at small and medium-sized businesses that allows them to accept credit card payments. Square turns a tablet or iPhone into a point-of-sale system.

Block also owns Cash App, which is a competitor to popular payments product Venmo. Cash App allows people to instantly transfer money to other users and businesses. Block currently has a market cap of 32.6 billion dollars; the company did 17.7 billion dollars in revenue in 2021 and currently trades at a P/E ratio of 67 times. While the company is still massive with a market cap of nearly 33 billion dollars, last year, its market cap peaked out at 110 billion. Just for reference, that's more than the value of Starbucks, a company that had over 32 billion dollars in sales last year.

If you're anything like me and don't ever carry cash, it's easy to see why Block was growing so fast. The whole business revolved around enabling digital payment and money transfer. However, the company made one big mistake. In 2021, Block announced they would be acquiring a company called Afterpay. Now, Afterpay is a buy now, pay later company. The business allows customers to spread out large payments over a period of weeks instead of paying it all up front. Afterpay charges sellers a fee in exchange for providing customers with what is essentially a loan to purchase an expensive item.

Block drastically overpaid for Afterpay. Block spent a whopping 29 billion dollars to acquire Afterpay, and this was at the peak of the bubble for the so-called buy-now-pay-later companies. For reference, Block's current market cap is 33 billion dollars. Now, this is almost the entire price they paid to purchase Afterpay. As investors realized Block overpaid, they sold the stock, and the stock is down nearly 80% from its all-time highs. Now, Block's products do continue to grow, but only time will tell if the stock price is able to eventually recover.

If you enjoyed this video, make sure to check out what stocks legendary investor Warren Buffett is buying in this video here. Subscribe to the channel because it's my goal to make you a better investor by studying the world's greatest investors. Talk to you again soon.