“Cathie Wood Stocks” is a phrase that many investors have come to recognize. As a tech hawk and the founder of Ark Investment Trust (NYSEARCA:ARKK), Cathie Wood is known for her aggressive plays in the stock market — but that doesn’t mean she’s without mistake.
In this article, we’ll examine three of the stocks that have a question mark over them and analyze whether Wood’s investment choices are sound in this area.
Coinbase Global (COIN)
Stocks like Coinbase Global (NASDAQ:COIN) could expose investors to too much risk. Cryptocurrencies like Bitcoin (BTC-USD) are risky enough without adding additional uncertainty into the mix. Investors choose cryptocurrencies with the prospect of these coins increasing in value. Why not just buy more Bitcoin if one is bullish on its future prospects?
Wood owns a large number of Coinbase shares through the Ark Investment Trust, which included the purchase of $12.6 million within the past month.
Most of Coinbase’s earnings come from fees charged to users from buying and selling assets on the platform. The issue is that as the cryptocurrency ecosystem grows, more competitors are expected to join. Those fees are then vulnerable to being undercut by new entrants vying for market share.
Finally, Coinbase’s main competitive advantages are its brand and first-mover advantage. For newer investors who are less experienced with crypto, Coinbase often comes to mind as the go-to option. The issue is that Coinbase’s economic moat doesn’t extend much further than that. With a higher price, as well as no unique features, this stock is often laughed out of the room by more knowledgeable crypto users. Cathie Wood stocks may have missed the mark on this one.
Grayscale Bitcoin Trust (GBTC)
Grayscale Bitcoin Trust (OTCMKTS:GBTC) shows us that there is interest in bitcoin at all economic levels, and Wood is no exception.
While investors can buy shares in Grayscale, they cannot redeem them for Bitcoin. Additionally, you need to pay a 2% management fee for the privilege of buying in and it generally tracks Bitcoin’s price poorly.
There’s also a lot of uncertainty that surrounds the trust. Grayscale has seen takeover attempts from aggrieved investors, an ongoing and likely futile legal battle with the Securities and Exchange Commission (SEC), as well as questions of the trust’s proof of reserves.
The central issue is that if Grayscale shares drop, investors have no way to redeem them for Bitcoin and would be forced to sell them at a loss. The trust seems content to earn a hefty management fee while it bides its time to sort these problems out. Establishing a Bitcoin ETF is Grayscale’s penultimate mission, and this would allow its investors to finally cash out their discount named GBTC shares for a hefty upside. But the SEC is digging in its heels and seems determined to not let that happen.
Cathie Wood’s purchase of GBTC stock is a mistake for the same core reason as loading up on Coinbase: why take such a huge risk when bitcoin is already extremely volatile and has delivered stellar returns? It seems no amount of potential gain or upside can satisfy Wood’s risk tolerance, so we can surmise that these decisions were driven primarily through greed and are irrational.
Shopify (SHOP)
Similar to Coinbase, Shopify (NYSE:SHOP) appeals to less experienced users and has a weak economic moat. Shopify doesn’t have any redeeming features that increase its value over other e-commerce software packages. In fact, Shopify has a problem with retaining their existing users, which can be chalked up to its high fees and largely inexperienced consumers.
Shopify has the lowest e-commerce domain survival rates when compared with its peer companies WooCommerce and PrestaShop. While its competitors have a one-year retention rate of at least 78%, Shopify has only 34%. The alternatives do have a steeper learning curve, but that weeds out users who are less invested in their e-commerce domains for the long term.
Shopify may be more beginner and hobbyist friendly, but that is largely in part because of its lack of unique and innovative features. This could quickly result in a loss of revenue, as serious e-commerce entrepreneurs begin to need more advanced setups, driving them towards Shopify’s competitors. Appealing to short-term users might not be a sustainable business model, and is a reason for why I believe Cathie Wood’s trust in Shopify stock is misplaced.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.