ARK Invest isn’t known as a hotbed for value investing. Founder, CEO, and chief stock picker Cathie Wood has a nose for growth, and she’d rather find an expensive growth stock than a solid company that just happens to be cheap.
However, some of her stocks are cheap by some non-conventional standards. Disney (NYSE:DIS), Coinbase Global (NASDAQ:COIN), and Grayscale Bitcoin Trust (OTC:GBTC) are cheaper than you probably think. Let’s take a closer look.
Cathie Wood was adding to her Disney stake for the first time in nearly two months after the media giant posted mixed financial results, and it’s easy to see why. Disney is the largest U.S. company by market cap to be trading at least 10% lower in 2021.
Disney is in much better shape now than it was when the year began. Its theme parks have returned to profitability. Theatrical distribution of its blockbuster content is back on the table. Advertisers are paying up to reach viewers of Disney’s broadcasting networks in an improving economy. Even Disney’s cruise ships are sailing again.
Disney trades at 36 times this new fiscal year’s projected earnings, but that’s not a fair measuring stick. A lot of the businesses at the House of Mouse are just starting to come back, and Disney+ — the star of the streaming service ball with 116 million premium users in just two years — will be a drag on the bottom line until at fiscal 2024. Look out to fiscal 2025 and Disney’s fetching just 16 times earnings.
Stretching out the timeline three fiscal years to arrive at a point where its P/E is in the mid teens may seem like a lot, but Disney’s business has more than earned a market premium. It’s also making some margin-maximizing moves at its theme parks that will turn things around a lot faster than even Wall Street pros think.
You don’t see value investors pounding the table for Coinbase, largely because crypto trading is seen by many as a speculative bubble. However, the world’s leading cryptocurrency exchange is growing fast with a scalable high-margin model that’s resulting in explosive profitability.
If you’re still not ready to accept Coinbase as cheap, let’s put it on a scale. Despite a market cap approaching $70 billion, Coinbase is trading for just 14 times trailing earnings. This is remarkable for a company that just posted 330% year-over-year growth in its latest quarter, and it is — admittedly — too good to be true. Coinbase had some one-time items propping up its profitability around the time of its springtime IPO, and a surge in trading earlier in this year has cooled off considerably.
Looking out to next year, analysts see Coinbase trading at 41 times earnings. The profit multiple suddenly doesn’t look so cheap, but Wall Street has underestimated the platform’s bottom-line results in its first two quarters as a public company. Revenue is growing a lot faster than its forward earnings multiple, and as cryptocurrency goes mainstream there will be even bigger opportunities for Coinbase to cash in as the undisputed market leader.
Grayscale Bitcoin Trust
Wood has been a bull on Bitcoin (CRYPTO:BTC), and that explains why she’s been a big buyer of Coinbase since its market debut. She doesn’t own Bitcoin directly, but she does own an exchange-traded vehicle that could be even better than the real thing.
Grayscale Bitcoin Trust is an investing vehicle that owns what is currently $38 billion in cold-stored Bitcoin. It does charge a rather stiff 2% annual fee — taken out of the Bitcoin it owns throughout the year — but it’s trading at a juicy discount. As of Thursday, the trust’s Bitcoin position amounted to $54.96 a share. The publicly traded shares closed at $46.48, a better than 15% discount to its net assets. Cryptocurrency is risky, but buying Bitcoin at a discount is a smart way to get some skin in the game.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.