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Zoom Stock: Cathie Wood Is Still Buying
Stock Analysis & Ideas

Zoom Stock: Cathie Wood Is Still Buying

Based in California, Zoom Video Communications (ZM) provides a video-and-voice teleconferencing platform. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

In case you didn’t get the memo, Zoom was a darling of the markets last year when the COVID-19 pandemic made teleconferencing tools a must-have for businesses and individuals.

However, no trend lasts forever, and as COVID-19 vaccines were widely distributed in 2021, ZM stock fell out of favor among stock traders.

The recent emergence of the Omicron COVID-19 variant strain reminded investors that the pandemic isn’t over, and Zoom’s video-conferencing tools will still be quite valuable.

Nevertheless, ZM stock has mostly trended down – and one famous fund employed a buy-the-dip strategy with Zoom shares, which could turn out to be a big winner in 2022.

Wood Thinks It’s Good

There’s no way to sugarcoat it. The second half of 2021 has been a rough ride for Zoom’s shareholders.

Painfully, ZM stock was cut in half, from $400 in August to $200 in mid-December.

Now, you might not think of Ark Invest Chief Executive and Chief Investment Officer Cathie Wood as a dip buyer or a value investor. Yet, a recent pair of big-ticket purchases might surprise you.

Specifically, there was a big purchase on November 23, where the ARK Innovation ETF (ARKK) acquired 538,573 shares of ZM stock, while the ARK Next Generation Internet ETF (ARKW) purchased 106,537 ZM shares.

That’s a total of 645,110 Zoom stock shares just in one day, or almost $130 million of ZM stock.

The most recent purchases came last Wednesday, with ARKK purchasing 86,764 shares and ARKW purchasing 22,039 shares.

Wood has a reputation for loading up on disruptive companies, including some high flyers in the stock market.

Yet, with the massive purchases of Zoom stock, it might be time to change our assumptions about Wood, as she could turn out to be a modern version of Warren Buffett.

It’s Just Portfolio Management

Indeed, after reading a couple of quotes attributed to Wood, you might have a completely different view of her mindset.

Concerning the Ark funds, Wood was quoted as saying, “We are usually selling when one of our stocks, even our high conviction stocks, has gone up say 20, 30, or 40% relative to the rest of the stocks in our portfolio.”

“It’s just called portfolio management,” she added, as if this profit-taking strategy was obvious to everyone.

Along with that, Wood revealed a perhaps unexpected penchant for acquiring beaten-down assets.

“If one stock has done that well relative to the others in the portfolio, we take some profits and deploy them into stocks that have been neglected or punished for some reason,” she clarified.

ZM stock would certainly fall into that “neglected or punished for some reason” category.

Furthermore, even as COVID-19 vaccines became widely available, Zoom’s revenues didn’t dry up. During its third quarter of 2021, Zoom reported $1.05 billion in revenues, up 35% year-over-year.

Wall Street’s Take

Turning to Wall Street, ZM earns a Moderate Buy consensus rating, based on 12 Buys, 13 Holds, and one Sell rating. The average Zoom price target of $297.50 implies 47.8% upside potential.

The Takeaway

While analysts are divided on Zoom, Wood’s forging ahead with a buy-the-dip strategy on the stock.

Moreover, Zoom’s ability to grow its revenues hasn’t stopped despite the availability of COVID-19 vaccines.

At the end of the day, investors shouldn’t make hasty assumptions about Wood’s mindset – and they shouldn’t just give up on out-of-favor, underpriced ZM stock.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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