Historically, September has always been the worst month for the stock market. This year was no different, as the S&P 500 Index ($SPX) and Nasdaq Composite ($NASX) finished the month down by 4.9% and 5.8%, respectively.
Now that the fourth quarter is here - typically a more favorable period for equities - here's a look at two beaten-down stocks that fund manager Cathie Wood herself scooped up.
Robinhood
Robinhood (HOOD) stock fell 9.9% in September, pacing weakness in the broader market, but is still up more than 18% year-to-date.
On a longer-term basis, HOOD remains down almost 89% from its all-time highs in 2021, thanks in large part to the Federal Reserve's rate-hike campaign, along with the overall market downtrend in 2022.
However, a major downside catalyst for HOOD specifically was that investors didn’t think its revenues were sustainable. For a long time, Robinhood relied purely on revenue from trading commissions. Given the fact that retail investors were losing on their trades and statistically shown to do worse if they traded more, this lack of diversity raised concerns.
Now, Robinhood has been making substantial headway in interest-based revenue, which helped the discount brokerage achieve its first profitable quarter, with $25 million in net income. Even though higher interest rates were the main reason for this jump, the company has also been successful in launching its retirement products, with over $1 billion in assets under management in just 6 months.
With interest rates likely to stay high, the growth of retirement accounts, and its ability to shift revenue away from trading, Robinhood seems to be poised for a turnaround. Moreover, trading at just a 6.58x P/S ratio, HOOD has a lot more room for growth, considering its highs of over 20x P/S.
Cathie Wood has long been a shareholder of Robinhood via her flagship Ark Innovation ETF (ARKK) and increased her stake by over $5 million after the company's first profitable quarter. After HOOD's latest pullback, now might be the time to consider picking it up.
Roblox
By the end of September, Roblox (RBLX) shares were down 26% from their July closing levels, but the stock has since recovered from its lows. Year to date, RBLX is just barely on positive ground, as a negative post-earnings reaction in August erased most of the stock's 2023 gains.
The sell-off was caused by many disappointing metrics. Bookings grew at 22%, but fell short of expectations. Losses widened as well, despite growth in active daily average users and user engagement hours - and average bookings per daily average user slipped 3%, shaking the confidence of investors. Notably, after the stock slipped post-earnings in August, Cathie Wood bought $25.5 million worth of shares at $29.46.
However, one positive catalyst for the stock is its increase in mature users. Currently, the player segment between 17-24 years old is growing the fastest at 35% YoY. With more mature players comes more mature buying power, and Roblox could soon be seeing increased revenue per user. In addition, Roblox also announced a partnership with Meta (META) to bring the game platform to its Quest VR headsets, representing a major move towards the metaverse.
Roblox’s price/sales ratio is near all-time lows at 5.17x - many times lower than the roughly 20x P/S the stock debuted at. Though Roblox is certainly facing some roadblocks, the platform is still growing, and the current valuation could position the stock at a favorable risk-to-reward.
Conclusion
With these two stocks extending their losses since Cathie Wood increased her holdings after earnings, buying now would mean locking in an even cheaper price than the ARK fund manager.
For Robinhood, its successful transition toward a more diverse revenue generation model could provide the stability that shareholders need. And though Roblox is having some hiccups with its financials, the platform is still growing at a rapid pace, and has new developments in the pipeline.
Overall, both stocks have been battered and bruised - and after the latest round of selling, now could be an appealing time to scoop them up.
On the date of publication, Michael Que did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
