Cathie Wood takes charge of Tesla

After Tesla Inc. (TSLA, Financial) shares fell Thursday on lackluster third-quarter sales and a warning that it will miss broad annual growth targets for the year, the leader of ARK Investment Management said.

Catherine Bois (Trades, Portfolio) profited from the sale.

The guru, who is the founder, chief investment officer and CEO of the New York-based company, revealed via flagship ARK Innovation ETF (ARKK, Financial) that it scooped up 66,190 shares of the electric vehicle maker on October 20. The purchase is valued at around $13.7 billion based on Tesla’s closing price on Thursday.

It is also the second time she has increased her investment in Elon Musk’s company this month. The fund bought the decline following a lack of deliveries reported by Tesla on Oct. 3.

According to portfolio data from GuruFocus, which is based on 13F filings for the third quarter, Wood held 4.08 million shares as of September 30, which was his largest holding with a weighting of 7.55%.

Data from GuruFocus shows that it has gained around 137.45% on the long-time investment so far.

Wood has made a name for himself investing in “disruptive innovation” stocks. Implementing an iterative process combining top-down and bottom-up research, ARK Investment seeks to invest in companies that stand to benefit from cross-industry innovations such as artificial intelligence, robotics, energy storage, DNA sequencing and blockchain technology.

Tesla fits the bill as the company has shaken up the automotive space with its innovative electric vehicles and self-driving technology. Wood has long been a fan of the company, which she said in her third-quarter letter was one of the top performers.

She also explained how companies focused on disruptive innovation have the potential to surprise on the upside with massive exponential growth trajectories.

“Traditional auto analysts viewed Tesla as doomed: they failed to understand that Tesla was a robotics, energy storage, and artificial intelligence company, not an automobile company,” Wood wrote.

Financial Overview

On October 19, Tesla announced that revenue for the three months ended September 30 increased 56% year-over-year to $21.45 billion. However, that was lower than the $21.96 billion Refinitiv analysts were anticipating.

According to Bloomberg, this is the first time the Austin, Texas-based company has missed its revenue estimates since the third quarter of 2021.

Net income of $3.3 billion was also up from the prior year quarter. Earnings of $1.05 a share beat analysts’ expectations by 99 cents.

Despite slowdowns in China and Europe as well as interest rate hikes from the Federal Reserve, Musk said on the earnings call that he expects demand to remain strong.

“I can’t stress enough that we have great demand for the fourth quarter and we plan to sell every car we make as far into the future as we can see,” he said. “Factories are running at full capacity and we deliver every car we make, while maintaining strong operating margins.”

Evaluation

Tesla has a market cap of $652.95 billion; its shares were trading around $208.38 on Friday with a price-to-earnings ratio of 76.23, a price-to-book ratio of 18.10 and a price-to-sales ratio of 10.75.

The GF value line suggests that the stock is currently significantly undervalued based on its historical ratios, past financial performance and analysts’ future earnings projections.

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The GF score of 81 out of 100, a ranking system that backtesting shows is highly correlated with long-term stock performance, further indicates that the company has good outperformance potential. While Tesla received high ratings for momentum, GF value, financial strength and growth, it recorded average ratings for profitability.

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GuruFocus rated Tesla’s financial strength at 8 out of 10, thanks to a comfortable level of interest coverage and a robust Altman Z-Score of 14.42 that indicates it is in good standing. Return on invested capital also eclipses the weighted average cost of capital, meaning that value is created as the business grows.

The company’s profitability was rated 4 out of 10 thanks to strong margins and returns on equity, assets and capital that outperform the majority of its competitors. Tesla also has a high Piotroski F-Score of 7, indicating that operations are sound, and a predictability rating of one out of five stars. GuruFocus research shows that companies in this ranking have an average return of 1.1% per year over a 10-year period.

Gurus Investors

Of the gurus invested in Tesla, Baillie Gifford currently holds the largest stake with 0.90% of his shares outstanding.

Ron Baron (Businesses, Portfolio),

PRIMECAP management (Businesses, Portfolio),

Spiros Segalas (Businesses, Portfolio),

Philippe Laffont (Businesses, Portfolio) and

Jim Simons (Businesses, portfolio)’ Renaissance Technologies also holds significant holdings.

Other professions

Wood’s ARK innovation fund also disclosed its sold shares of several stocks on Thursday, including Nvidia Corp. (NVDA, Financial), Intellia Therapeutics Inc. (NTLA, financial), CRISPR Therapeutics AG (CRSP, Financial), Berkeley Lights Inc. (BLI, Financial), Beam Therapeutics Inc. (SHINE, Financial), Materialize NV (MTLS, Financial) and TuSimple Holdings Inc. (PST, Financial)

Composition and performance of the portfolio

Wood’s $33.07 billion equity portfolio, which according to Filing 13F consisted of 249 stocks as of Sept. 30, is most heavily invested in the healthcare and technology sectors.

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After a blistering year in 2020, the ARK Innovation ETF returned -23.36% in 2021, significantly underperforming the 28.7% return of the S&P 500.

Investors should be aware that 13F filings do not provide a complete picture of a company’s holdings as the reports only include its positions in US stocks and US certificates of deposit, but they can still provide valuable insight. Additionally, reports only reflect trades and holdings as of the most recent portfolio deposit date, which may or may not be held by the reporting company today or even when this article was published.

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