ARKQ ETF: Tesla’s Wild Ride Stalls, The Growth Style Takes A Back Seat (BATS:ARKQ)

Eli Wilson The ARK Autonomous Technology & Robotics ETF (BATS:ARKQ) was flying high just a few weeks ago when shares of Tesla (TSLA) rose 11 sessions running. The tech-auto company reported solid monthly vehicle sales while optimism built around the potential for full self-driving and robo-taxis before long. The rekindling of TSLA’s “magnificence” was brought to a halt, however, in advance of the firm’s quarterly earnings report. CEO Elon Musk sounded less optimistic about near-term technological developments, while the firm’s margins were compressed more than analysts were expecting. Still, TSLA remains significantly above its range from February through the first half of June as its downtrend may be in the rearview mirror. I reiterate a hold rating on ARKQ. The fund’s biggest position remains TSLA, and while I am encouraged by decent technical price action in TSLA, ARKQ’s chart leaves something to be desired. Fundamentally, the ETF’s high valuation is a risk ahead of what can be a weak calendar stretch. Since my previous analysis, shares are up merely 3.6% compared to a 16.5% total return in the S&P 500. Low-quality and SMID caps have been generally out of favor – two areas ARKQ is heavily invested in. TSLA: Shares Consolidating the Early-Summer Surge Stockcharts.com According to the issuer, ARKQ seeks long-term growth of capital by investing under normal circumstances primarily (at least 80% of its assets) in domestic and foreign equity securities of autonomous technology and robotics companies that are relevant to the fund’s investment theme of disruptive innovation. The ETF aims to own companies focused on the development of new products or services, technological improvements, and advancements in scientific research related to, among other things, energy, automation and manufacturing, materials, artificial intelligence, and transportation. ARK has lost significant assets so far this year. Total assets under management have fallen from $1.05 billion as of early this year to just $781 million today. Moreover, share-price momentum is notably weak on the 0.75% annual expense ratio fund. No dividend has been paid on the ETF and its risk rating is likewise poor. The only bright spot from a quantitative perspective is that ARKQ is decently liquid given average daily trading volume of more than 80,000 shares and a median 30-day bid/ask spread of just five basis points as of July 25, 2024, per ARK Invest. For a refresher on the portfolio’s holdings, the 2-star, Negative-rated ETF by Morningstar has a very large tilt toward the growth style with more than one-third of its allocation invested in small caps. That’s a significant amount of risk, though the market has recently shifted in favor of SMID-cap stocks. But with a price-to-earnings ratio north of 30x and a long-term EPS growth rate of just 13.4%, the PEG ratio valuation suggests that ARKQ is pricey. Its quality factor ranks low too. ARKQ: Portfolio & Factor Profiles Morningstar ARKQ is very much geared to strength in tech-related industrial activity. Given the high amount of stimulus poured into that area back in 2021 and 2022, the business backdrop is actually strong. The problem is that much of the optimism was priced in during the low-interest rate era post-pandemic. Today, 37% of ARKQ is allocated to the Information Technology sector, with a large overweight to Industrials. Consumer Discretionary, which is where Tesla is found, is another overweight. ARKQ: Tech & Industrials Exposure Seeking Alpha Seasonally, the August through September period is ARKQ’s worst month when scanning historical trends. So, being patient with an entry into the ETF is prudent today, in my view. ARKQ: Bearish August-September Seasonality Ahead Seeking Alpha The Technical Take With a high valuation and bearish seasonals, ARKQ’s chart is neutral but with a dose of potential if we see a breakout. Notice in the graph below that shares have key resistance in the $59 to $61 range. This zone has been an area that has given the bulls fits. If the fund rallies through resistance, though, then an upside measured move price objective to about $78 would be in play based on the height of the existing consolidation pattern. That would bring ARKQ back to its late 2021 all-time high range. For now, a flat long-term 200-day moving average suggests that there’s an ongoing battle between the bulls and bears. But take a look at the RSI momentum oscillator at the top of the chart – it’s actually in a bullish range between 40 and 75, lending more credence to the possibility of an upside breakout. Finally, support is apparent at an uptrend line, currently at $50. ARKQ: Ongoing Consolidation, Monitoring Breakout Potential Stockcharts.com The Bottom Line I have a hold rating on ARKQ. If it breaks out above $60, it would be time to get in from a momentum point of view. Fundamentally, the valuation is high while the ETF’s biggest stock tries to recapture its former glory.

Buy cryptocurrency

Source link

Refer And Earn Demat Account – Get ₹300 | Referral Program

Open Demat Account In Angel One For FREE