Allbirds foolishly pivots from shoemaking to AI; Why has no one held ARK Invest's Cathie Wood accountable?; PepsiCo's earnings have improved thanks to Elliott Investment Management

1) Both the S&P 500 Index and the tech-heavy Nasdaq Composite Index hit all-time highs yesterday, which means "animal spirits" have returned to the markets. That means investors have to be extra careful to avoid traps that will sink them...

It would be hard to find a better example than the nonsense yesterday with near-bankrupt shoemaker Allbirds (BIRD). The stock soared 582% – from $2.49 to $16.99 – after making this announcement:

[The Company] today announced the execution of a definitive agreement with an institutional investor for a $50 million convertible financing facility (the "Facility"). The Facility, which is expected to close during the second quarter of 2026, will enable the Company to pivot its business to AI compute infrastructure, with a long-term vision to become a fully integrated GPU-as-a-Service (GPUaaS) and AI-native cloud solutions provider. In connection with this pivot, the Company anticipates changing its name to "NewBird AI."

The Wall Street Journal rightly criticizes this move:

With the head-spinning pivot, Allbirds joins a long list of firms – including a karaoke company, an ice-tea manufacturer and Eastman Kodak – that have tried their hand in hot new industries when their companies were struggling.

The move comes just weeks after Allbirds, once valued at $4 billion, struck a deal to sell off most of its assets for $39 million. Indeed, the company needed a new name because it is selling its old one.

The article highlights how absurd the company's plans are, as a $50 million investment is "a drop in the bucket" in the world of AI:

Cloud-computing company CoreWeave plans to spend $30 billion to $35 billion to build out its operations this year. Nebius – a smaller player in this so-called neocloud sector – plans to spend $16 billion to $20 billion this year. With an initial war chest of $50 million, Allbirds is likely to find itself at the back of a long line of much richer buyers of chips that are in short supply.

As investing legend Charlie Munger once said:

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

If Munger were alive today, he would no doubt point to Allbirds yesterday as a perfect example of a stupid thing sensible investors should avoid.

Case in point, the stock crashed as much as 31% this morning.

2) Speaking of things to avoid, I've warned my readers about ARK Invest's Cathie Wood dozens of times, most recently in my April 2 e-mail.

For those who need more convincing, my friend Chris Irons (aka Quoth the Raven) details Wood's long and dreadful track record in this Substack post:

By 2024, Morningstar estimated that ARK had destroyed approximately $14 billion in investor capital. They listed her as one of the top 15 funds that have destroyed the most wealth over the past decade.

Not underperformed; destroyed. That is the kind of number that would normally invite some uncomfortable questions. Instead, the broader narrative around Wood has remained oddly charitable, as though the earlier success still carries more weight than the subsequent reality. Here she is getting 10 minutes on CNBC at the beginning of this month. A month before that, in March, she got another 10 minutes with Tom Lee. To start the year she was asked about her predictions for 2026 in another 6 minute look interview.

He concludes:

Look, I'm not the world's greatest investor, but at least I don't promise 30-40% compounded returns. Read my disclaimer and that will be clear. But when it comes to Wood the key question is this: if missing price targets and operational milestones by such wide margins while destroying billions in investor capital, while collecting hundreds of millions in fees is just [fine], what, exactly, will it take for the investing community to hold Cathie Wood accountable?

Given what a contra-indicator Wood is, that might be a warning for her top stocks:

I'm not saying they're all doomed... But overall, I'm highly wary of Wood.

Meanwhile, I'll note that two of her top holdings, Tesla (TSLA) and Palantir Technologies (PLTR), are on my list of "Stinky Six" stocks to avoid, which I named on October 29. Tesla and Palantir are down 15% and 25% since then, respectively, versus a 2% gain for the S&P 500.

3) Rather than engaging in rank speculation, investors should focus on high-quality companies. One example is snack and beverage giant PepsiCo (PEP), which reported strong first-quarter earnings this morning.

Excluding currency fluctuations and acquisitions, organic revenue grew 2.6% and core operating profit jumped 9%.

The company also reaffirmed full-year guidance for organic revenue growth between 2% and 4%, as well as earnings-per-share ("EPS") growth between 4% and 6%.

It expects to return approximately $8.9 billion of cash to shareholders in 2026, comprised of $7.9 billion of dividends and $1 billion of share repurchases.

This WSJ article covers how PepsiCo's recent strategy changes have helped improve its profitability:

In February, PepsiCo said it would cut prices on some of its chips and snacks by as much as 15%, in a bid to woo cost-conscious consumers back to snacks like Lay's potato chips and Doritos. The company found affordability was a big reason why consumers held back from purchases...

The company also overhauled the marketing for Lay's, focusing on the fact that they are made from "real potatoes." PepsiCo changed the packaging, highlighting the lack of artificial colors and flavors. It next is focusing on the Tostitos tortilla chips and Quaker-branded foods...

The improvement comes after PepsiCo struck an agreement with activist investor Elliott Investment Management late last year. At the time, PepsiCo said it would cut expenses across its food and beverage operations and trim the number of its products by 20% across its U.S. businesses.

I took a first look at PepsiCo on September 10 and did a deeper dive on Elliott's activism at the company on September 11. Finally, on September 12, I concluded:

It's much too soon to buy PepsiCo's stock for three reasons:

• It's not clear how big an impact the GLP-1 weight-loss drugs will have on both its beverages and snack-foods businesses...
• It's not clear whether the company will adopt Elliott's ideas (most importantly, spinning off its bottlers)...
• And even if PepsiCo does adopt the ideas, it will likely be a long and difficult process – resulting in uncertainty and earnings misses that will knock the stock down to a more attractive level.

The stock is up 8% since then, fueled in part by PepsiCo striking the agreement with Elliott in December.

It's currently trading at 18.4 times consensus analysts' EPS estimates for this year. That's a modest discount to the 21.1 times multiple for the S&P 500 and the stock's 10-year average of 21.8 times. So I'd say PEP is moderately undervalued right now.

My Stansberry's Investment Advisory team and I will keep an eye on the stock. If it becomes deeply undervalued and we decide to recommend it, as always, subscribers will be the first to know. You can become one by clicking here.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.

P.P.S. Birthday season has begun in the Tilson household. My middle daughter Emily is 27 today, followed by Alison who's turning 30 next week, and Katharine who's 24 next month.

Here's a baby photo of Emily:

And here's a collage I sent around of family photos from the past year: