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Cathie Wood Is Buying These Growth Stocks -- Should You?

By Trevor Jennewine – Aug 16, 2021 at 11:22AM

Key Points

  • Popular fund manager Cathie Wood is buying shares of Coinbase and Etsy.

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Watching successful stock pickers can be a smart way to find inspiration.

ARK Invest CEO Cathie Wood has developed a reputation for bucking Wall Street's conventional wisdom. For instance, rather than focusing on near-term price targets, she prefers to look at the big picture. ARK's portfolios are built on disruptive trends like blockchain and next-generation internet, not traditional valuation metrics.

With that investment philosophy in mind, Wood has recently been buying stock in Coinbase Global (COIN -2.83%) and Etsy (ETSY 0.27%), taking advantage of the fact that share prices have fallen 19% and 21%, respectively, from their 52-week highs.

Given her past success, let's take a closer look at these two stocks and see if she might have the right idea.

Investor looking offscreen, overlaid with upward trending arrows.

Image source: Getty Images.

1. Coinbase Global

In 2009, Bitcoin debuted as a peer-to-peer electronic cash system, replacing financial institutions with blockchain software. Since then, the crypto economy has grown to include over 7,500 crypto assets, and a range of decentralized financial (DeFi) services. For instance, consumers can earn interest by saving, staking, or lending digital tokens and they can access credit by borrowing cryptocurrency.

Coinbase helps its clients participate in the burgeoning crypto economy. Its platform provides a range of products for retail investors, financial institutions, and ecosystem partners. Of course, this includes brokerage and wallet services, but Coinbase also provides development tools for software engineers, analytics tools for law enforcement, and payment processing services for merchants.

To differentiate itself, Coinbase has invested heavily in regulatory compliance and cybersecurity. In fact, the company has never lost funds due to a breach, and it secures its clients' assets with the largest hot wallet crime program in the insurance market. These efforts have helped Coinbase earn consumer trust, as evidenced by the $180 billion in assets on its platform. Put another way, the company safeguards 11.2% of all existing crypto assets.

In the first half of 2021, Coinbase delivered a stunning financial performance. Revenue skyrocketed 969% to $4.0 billion, and the company posted a profit of $9.60 per diluted share, up 6,300% from the prior year. However, there's a catch -- Coinbase's financial results have historically been highly dependent on the price of Bitcoin and the volatility of crypto assets. During periods of high volatility (or prices), trading volume tends to rise, driving an uptick in transaction revenue.

With that in mind, Bitcoin reached an all-time high of $64,000 in April, before falling 45% the following month. In other words, the market has been incredibly volatile, and that supercharged the company's financial results.

Looking ahead, Coinbase's future is far from certain, but I think it comes down to this: Do you think cryptocurrency is a passing fad or a permanent asset class? If you believe in the future of the crypto economy, then this stock looks like a smart way to play that trend.

For her part, Wood certainly sees a bright future for Coinbase; the stock is Ark's fourth-largest holding, representing 3.6% of its portfolio.

Thoughtful investor holding newspaper.

Image source: Getty Images.

2. Etsy

Etsy's mission is to keep commerce human. To that end, its marketplace is built around unique and creative goods, the types of things that can't be mass-produced or commoditized. Etsy is a great place to buy handcrafted furnishings, personalize artwork, or vintage apparel.

Last year, COVID-19 put Etsy on the map for many consumers, as they turned to the platform for face masks and other necessities. To retain these buyers, the company has invested aggressively in improving its user experience. For instance, Etsy upgraded its AI engine to improve search results and personalized recommendations, and it introduced video listings for sellers, giving buyers a behind-the-scenes look at how products are made.

The company also extended its offsite advertising program, which now hits the entire Google Display Network (over 2 million websites, videos, and apps), as well as popular news outlets like Buzzfeed and social media sites like Facebook and Pinterest.

So why is the stock down? After posting 111% sales growth last year, Etsy's financial results through the first half of 2021 have been somewhat mild by comparison. That being said, investors should consider the context: The pandemic supercharged e-commerce adoption in 2020, and while Etsy's growth has decelerated sharply, the fact that it's still growing this quickly is impressive.

Metric

H1 2020

H1 2021

Change

Revenue

$656.8 million

$1.1 billion

64%

Source: Etsy SEC filings.

Going forward, I think Etsy has a bright future. It recently doubled down on India, the fastest-growing e-commerce market in the world. And in June Etsy acquired fashion resale platform Depop, increasing its presence in the apparel market, the largest vertical in e-commerce. Shortly after, it acquired Elo7, an Etsy-like marketplace based in Brazil, further extending its geographic reach.

Collectively, these moves push Etsy's market opportunity to $1.7 trillion, meaning the company has plenty of room to run. That's why I own this growth stock.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Etsy and Pinterest. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Bitcoin, Etsy, Facebook, and Pinterest. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Etsy Stock Quote
Etsy
ETSY
$120.31 (0.27%) $0.32
Coinbase Global, Inc. Stock Quote
Coinbase Global, Inc.
COIN
$44.28 (-2.83%) $-1.29

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