Cathie Wood’s Top 15 Small-Cap Stock Picks

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In this article, we discuss the 10 small-cap stock picks of Cathie Wood’s 2022 portfolio. If you want to skip our analysis of Wood’s hedge fund performance, go directly to Cathie Wood’s Top 5 Small-Cap Stock Picks.

Cathie Wood is having a tough year as her flagship ARK Innovation ETF (NYSEArca:ARKK) is down over 53% since January 1 as compared to the decline of just over 17% experienced by the S&P 500 Index during the same period. This is a complete contrast to the ETF’s return of 150% in 2020 against a modest return of 16% by the broader market. This year’s performance has prompted observers to question Wood’s credibility as the CEO and hedge fund manager of ARK Investment Management. The CEO has commented that her performance should be gauged over five years as she has numerous companies in her portfolio that are in their early stage and have not staged the optimum level of profitability. Cathie has predicted her hedge fund to post annual returns of 40% in the next five years, a significant increase from her earlier objective of 15% to 20%.

The head of Ark Invest highlighted that this year’s elevated inflation had been fueled by continued supply-chain problems and the Russia-Ukraine conflict. However, she argued that even high-end stores like Walmart are finding it difficult to clear extra stock, increasing the possibility of broad price reductions and deflation in the months to come. Wood further noted that high inflation is one of the reasons why consumer confidence has reached historic lows. She indicated that this trend might potentially cause prices to drop in the near future.

In Q2 2022, Cathie Wood’s portfolio was valued at over $16.9 billion, down from $23.96 billion in the first quarter of the year. Some of the popular companies included in Wood’s portfolio as of Q2 are NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Block, Inc. (NYSE:SQ).

Cathie Wood of ARK Investment Management

Our Methodology

In this article, we will go through the portfolio of Cathie Wood’s Ark Investment Management as of Q2 2022 and take a look at the top 15 small-cap stock picks by the hedge fund. We have selected stocks that have a market capitalization between $700 million – $3 billion as of July 26. We have ranked these stocks according to their weightage in the hedge fund’s portfolio.

Cathie Wood’s Top 15 Small-Cap Stock Picks

15. Adaptive Biotechnologies Corporation (NASDAQ:ADPT)

Number of Hedge Fund Holders: 28

Cathie Wood’s Ark Investment Management’s Holdings: $68,605,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.4%

Market Capitalization as of July 26: $1.24 billion

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is a Seattle, Washington-based biotech company that is working on developing immune-driven medicines.

On June 2, David Westenberg at Piper Sandler initiated coverage on Adaptive Biotechnologies Corporation (NASDAQ:ADPT) stock with a Neutral rating and a target price of $7.50. The analyst thinks that the Adaptive Biotechnologies Corporation’s (NASDAQ:ADPT) aim of studying the immune system will give it a “significant and sustainable” lead in diagnosing patients. Adaptive Biotechnologies Corporation (NASDAQ:ADPT) has introduced two tests under the T-Detect franchise that detect immune responses to diagnose diseases.

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) was mentioned in the Q1 2022 investor letter of  Aristotle Capital Management. Here’s what the firm said:

“Shares of Adaptive Biotechnologies were weak in the first quarter, despite the company reporting better-than-expected results and guiding in line with estimates in mid-February. High-valuation growth companies like Adaptive Biotechnologies continued to be pressured during the quarter, as investors weighed the risk of inflation and rising Treasury yields. On a positive note, clonoSEQ volumes continue to be strong and we believe 2022 is shaping up to be a catalyst rich year for the company.”

Adaptive Biotechnologies Corporation (NASDAQ:ADPT) was held by 28 hedge funds as of Q1 2022.

14. Schrödinger, Inc. (NASDAQ:SDGR)

Number of Hedge Fund Holders: 22

Cathie Wood’s Ark Investment Management’s Holdings: $76,310,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.45%

Market Capitalization as of July 26: $2.24 billion

Schrödinger, Inc. (NASDAQ:SDGR) is a New York-based developer of chemical simulation software that is widely employed by the biotech and pharma sectors.

Ahead of the Q2 2022 results, Do Kim at Piper Sandler increased the price target on Schrödinger, Inc. (NASDAQ:SDGR) from $84 to $86 on July 26 and reiterated an Overweight rating on the stock. Schrödinger, Inc. (NASDAQ:SDGR) has been working on the MALT1 inhibitor. The FDA has cleared the investigational new drug application, and the company is on its way to starting a Phase 1 clinical trial in patients having B-cell lymphoma.

In its Q4 2021 investor letter, Baron Funds shared its outlook on Schrödinger, Inc. (NASDAQ:SDGR). Here’s what the firm said:

“Our Disruptive Growth investments are pursuing idiosyncratic opportunities across the entirety of the global economy. Schrodinger, Inc. is pushing the boundaries of drug development by pursuing novel diagnostics and therapeutics in areas including neurodegenerative disease and blood cancers.”

ARK Investment Management was the leading hedge fund investor in Schrödinger, Inc. (NASDAQ:SDGR) as of Q2 2022, with a stake worth over $76.3 million.

13. Cerus Corporation (NASDAQ:CERS)

Number of Hedge Fund Holders: 22

Cathie Wood’s Ark Investment Management’s Holdings: $84,700,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.5%

Market Capitalization as of July 26: $946.4 million

Cerus Corporation (NASDAQ:CERS) is a Concord, California-based biotech company.

In April, Cerus Corporation (NASDAQ:CERS) signed a five-year contract for its Intercept system with the American Red Cross. The humanitarian organization is responsible for supplying around 40% of the blood products in the US market. Since the COVID-19 pandemic, the demand for blood products has increased significantly. To ensure smooth manufacturing in the long run, Cerus Corporation (NASDAQ:CERS) also signed a 10-year contract extension with Fresenius Kabi for the manufacturing of its Intercept system in May 2022.

Cerus Corporation (NASDAQ:CERS) was held by 22 hedge funds as of Q1 2022.

12. 2U, Inc. (NASDAQ:TWOU)

Number of Hedge Fund Holders: 21

Cathie Wood’s Ark Investment Management’s Holdings: $89,342,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.52%

Market Capitalization as of July 26: $730.6 million

2U, Inc. (NASDAQ:TWOU) is a Lanham, Maryland-based ed-tech organization that partners with non-profit colleges and universities to offer online degrees and non-degree programs.

On July 25, Frederick Havemeyer at Macquarie gave 2U, Inc. (NASDAQ:TWOU) stock a Neutral rating with a target price of $11. The target price assumes the probability of a recession and other macroeconomic concerns. On June 29, Indian digital learning platform Byju’s gave a $15 per share bid for 2U, Inc. (NASDAQ:TWOU) as it looks to expand its footprint in the US market.

Here’s what ClearBridge Investments said about 2U, Inc. (NASDAQ:TWOU) in its Q4 2021 investor letter:

“The lingering pandemic continues to cause volatility across sectors. Among detractors for the quarter, after online education tech company 2U received a boost from the move to online education at the outset of the COVID-19 pandemic, attention has now turned to a tight labor market that has historically led to softer enrollments. Although 2U exceeded third-quarter expectations and closed on its acquisition of edX in the fourth quarter, weak results from educational services provider Chegg seemingly confirmed the market’s enrollment concerns and weighed on 2U. Nevertheless, we continue to believe the longterm prospects for 2U are much brighter than are embedded in the stock today.”

11. Materialise NV (NASDAQ:MTLS)

Number of Hedge Fund Holders: 7

Cathie Wood’s Ark Investment Management’s Holdings: $90,723,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.53%

Market Capitalization as of July 26: $826.3 million

Materialise NV (NASDAQ:MTLS) is a Belgium-based software and 3D printing company.

During Q2 2022, Ark Investment Management increased its stake in the company by 6% to 6.2 million. The hedge fund initiated a position in Materialise NV (NASDAQ:MTLS) stock in Q4 2016.

In May, Noelle Dilts at Stifel gave a Buy rating on Materialise NV (NASDAQ:MTLS). The analyst is optimistic about the future of 3D printing technologies over the next ten years. Dilts also expects Materialise NV (NASDAQ:MTLS) to increase investment in research and development in 2023.

Overall, 7 hedge funds held a stake in Materialise NV (NASDAQ:MTLS) as of Q1 2022.

10. AeroVironment, Inc. (NASDAQ:AVAV)

Number of Hedge Fund Holders: 10

Cathie Wood’s Ark Investment Management’s Holdings: $92,317,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.54%

Market Capitalization as of July 26: $2.07 billion

AeroVironment, Inc. (NASDAQ:AVAV) is an Arlington, Virginia-based manufacturer of unmanned aerial vehicles.

On July 1, Peter Skibitski at Alembic Global upgraded AeroVironment, Inc. (NASDAQ:AVAV) stock from a Neutral to an Overweight rating and assigned a target price of $103. It must be noted that the Pentagon has approved the export of Switchblade 300 and 600 to more than 20 US allies around the world. Furthermore, the US has dispatched drones to areas impacted by the conflict between Russia and Ukraine and thus would require replenishment of drone inventory to at least pre-conflict level. These developments are expected to benefit a company like AeroVironment, Inc. (NASDAQ:AVAV).

At the end of Q1 2022, 10 hedge funds held a stake in AeroVironment, Inc. (NASDAQ:AVAV), down from 14 in the preceding quarter.

9. CareDx, Inc (NASDAQ:CDNA)

Number of Hedge Fund Holders: 19

Cathie Wood’s Ark Investment Management’s Holdings: $100,486,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.59%

Market Capitalization as of July 26: $1.26 billion

CareDx, Inc (NASDAQ:CDNA) is a Brisbane, California-based provider of diagnostic solutions for transplant patients and medical professionals.

CareDx, Inc (NASDAQ:CDNA) stock price has come under pressure due to the proceedings by the Department of Justice (DoJ) and the US Securities and Exchange Commission (SEC) regarding a False Claims Act investigation. The DoJ is looking into the company’s kidney testing and other offerings. Meanwhile, the SEC is looking into its public-reporting methods. Industry experts anticipate these problems to subside in the near future, which would help unlock the true potential of CareDx, Inc (NASDAQ:CDNA).

CareDx, Inc (NASDAQ:CDNA) was mentioned in the Q4 2021 investor letter of Baron Funds. Here’s what the firm said:

CareDx, Inc. provides transplant testing and ancillary services. The company reported strong fourth quarter earnings (it beat and raised full-year guidance), driven primarily by its kidney and heart transplant tests. It also continues to move forward with more transplant tests (liver, stem cell/bone marrow transplant, cell transplant, and lung). We believe the weak share performance in the quarter related to flattish revenue guidance in the fourth quarter driven by some holiday seasonality and the Omicron COVID variant. Additionally, some investors were concerned that average selling prices were a bit lower in the third quarter, however this reflects the company’s new lung test which is not yet reimbursed by commercial insurers (but which CareDx is running to gain share). This is typical of diagnostic launches, and we are not concerned. There is also noise surrounding a competitor’s study data in kidney that is purported to be more accurate than CareDx’s test. While the headline number looks slightly better for the competitor, it is important to note that CareDx’s Heart Care combination test, which includes both donor-derived DNA and gene expression testing, is at least comparable to the competitor’s accuracy. Also, the full publication has not yet been released, and we have reason to believe that CareDx could successfully modify its test to be as accurate as the competitor if needed. CareDx has proven itself to be a terrific long-term partner to its customers, providing not only tests, but services to transplant centers and their patients that creates brand stickiness, and therefore competitive advantage beyond pure testing. We are not concerned by the short-term dip in the share price as CareDx still has significant market opportunity in kidney, heart, and all of its pipeline products.”

Overall, 19 hedge funds held a stake in CareDx, Inc (NASDAQ:CDNA) as of Q1 2022.

8. TuSimple Holdings Inc. (NASDAQ:TSP)

Number of Hedge Fund Holders: 17

Cathie Wood’s Ark Investment Management’s Holdings: $111,363,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.65%

Market Capitalization as of July 26: $2.14 billion

TuSimple Holdings Inc. (NASDAQ:TSP) is a San Diego, California-based company that is working on improving the efficiency and safety of the trucking industry through autonomous technologies.

On July 8, Ravi Shanker at Morgan Stanley gave TuSimple Holdings Inc. (NASDAQ:TSP) stock a target price of $35 and maintained an Overweight rating on the stock. The analyst saw the first half of the year as turbulent for TuSimple Holdings Inc. (NASDAQ:TSP) due to stock volatility and changes in management. However, there were certain positive developments as well such as the Committee on Foreign Investment in the United States (CFIUS) resolution and the analyst day.

ARK Investment Management increased its investment in TuSimple Holdings Inc. (NASDAQ:TSP) by 5% during Q2 2022.

7. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)

Number of Hedge Fund Holders: 17

Cathie Wood’s Ark Investment Management’s Holdings: $118,664,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.7%

Market Capitalization as of July 26: $1.79 billion

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a developer of platforms, technology, and systems for US National Security clients.

In a note issued to investors on July 26, Austin Moeller at Canaccord noted that Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) had been awarded a $54 million contract for the production of a limited-life jet engine. The development of this jet engine could provide Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) with a strong growth path from 2023 to 2025. The analyst has given Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock a Buy rating with a $23 target price.

Overall, 17 hedge funds held a cumulative stake worth over $248 million in Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) as of Q1 2022.

6. Veracyte, Inc. (NASDAQ:VCYT)

Number of Hedge Fund Holders: 15

Cathie Wood’s Ark Investment Management’s Holdings: $155,693,000

Percentage of Cathie Wood’s Ark Investment Management’s Portfolio: 0.92%

Market Capitalization as of July 26: $1.76 billion

Veracyte, Inc. (NASDAQ:VCYT) is a San Francisco, California-based diagnostics company that brings into use genomic technology and machine learning.

Veracyte, Inc.’s (NASDAQ:VCYT) majority of revenue comes from Afirma thyroid cancer and Decipher prostate cancer tests. Veracyte, Inc. (NASDAQ:VCYT) is set to report its Q2 2022 results on August 2. Analysts anticipate the company to report revenue and adjusted loss per share of $68.08 million and 23 cents, respectively. During the same period last year, Veracyte, Inc.’s (NASDAQ:VCYT) revenue and adjusted loss per share were reported at $55.11 million and 13 cents, respectively.

In its Q2 2021 investor letter, Baron Discovery Fund discussed its outlook on Veracyte, Inc. (NASDAQ:VCYT). Here’s what the firm said:

“Veracyte, Inc. is a medical diagnostics company specializing in the characterization of thyroid, lung, breast, and urological cancers. In our opinion, Veracyte has the highest-quality (or in some cases, only) tests for these indications in the market. The company’s tests help to qualify with a high degree of accuracy whether a patient with suspicious initial medical findings (from a needle aspiration for thyroid, or CT scan for lung cancer) needs to be followed up with a higher risk, expensive invasive medical procedure such as a full-tissue biopsy. Newer tests will catch cancer activity at very early stages, allowing for better outcomes. The company is also building an extensive database of complex genetic findings to better aid the accuracy of its results. Since our initial investment in Veracyte in the middle of 2019, the company has been busy enhancing its product base and extending its growth markets. It acquired an analyzer platform at the end of 2019 that will let it sell its tests as kits in the EU, which has a more fragmented lab landscape than the U.S. New test kits for the analyzer are expected to launch at the end of 2021. The company also acquired a urological testing franchise for bladder, kidney, and prostate cancers in early 2021 that adds an additional $2 billion to its market opportunity. Finally, in mid-2021 Veracyte bought a company that brings EU manufacturing capability to support the EU test kit strategy, with additional capabilities in the colorectal cancer space (another $2 billion market opportunity). The purchase was funded with a $630 million equity raise (done at market high share prices). In total, Veracyte has positioned itself to address over $14 billion in total market opportunity, including $8.4 billion in lung, $800 million in thyroid, $900 million in breast, $2 billion in urology and $2 billion in colorectal cancer. We believe that shares were down in the quarter due to the news that Bonnie Anderson, the highly esteemed founder and CEO of Veracyte, announced that she will be stepping down as CEO but will remain as Chairman of the company.We spoke with Bonnie and the new CEO, Mark Stapley soon after the announcement. We believe that Mark is a terrific hire as he has significant industry experience, particularly in the role of building out international organizations. His pedigree includes a role as CFO of Illumina, the leading next-generation DNA sequencing systems developer. Bonnie will retain a key strategic role at the company. We believe shares will recover as Veracyte shows increased penetration into all of its market opportunities, and that other investors are being incredibly short-sighted given the company’s terrific strategic execution over the past few years.”

Veracyte, Inc. (NASDAQ:VCYT) was held by 15 hedge funds at the end of Q1 2022, down from 16 in the previous quarter.

In addition to small-cap stocks like Veracyte, Inc. (NASDAQ:VCYT), Cathie Wood also has a stake in notable companies such as NVIDIA Corporation (NASDAQ:NVDA), Tesla, Inc. (NASDAQ:TSLA), and Block, Inc. (NYSE:SQ) as of the second quarter of 2022.

Click to continue reading and see Cathie Wood’s Top 5 Small-Cap Stock Picks.

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Disclose. None. Cathie Wood’s Top 15 Small-Cap Stock Picks is originally published on Insider Monkey.