Famed investor Cathie Wood attracted major public attention last year, and for good reason. Her company's flagship exchange-traded fund, Ark Innovation ETF, skyrocketed 149% in 2020. The pandemic actually propelled many of her big portfolio holdings, which focus on companies that utilize innovative technology to disrupt traditional industries.
As an individual investor looking to boost your returns, you can gain exposure to some of Cathie Wood's best stocks by investing in their shares directly. Let's find out why DocuSign (DOCU -8.93%), JD.com (JD 0.92%), and Roku (ROKU -7.10%) were identified by a team of Motley Fool contributors as businesses with excellent long-term prospects that just might give you an early retirement.
Signing off on strong growth
Eric Volkman (DocuSign): One company that could really set an investor right for their senior years is DocuSign, the leading digital-signature specialist. As the world becomes ever more e-connected, DocuSign will be there to earn revenue from its services.
Many investors were sharply aware of this during the pandemic, which was the high-water mark for work-at-home situations (and therefore considered the same for the remote digital signing of documents). Consequently, DocuSign rose to the highest stock price levels in its short history.
Recently, though, the hope that we will soon push past the delta variant to largely escape the outbreak has affected DocuSign stock. It's come down from those lofty price heights as investors move on to companies they believe are better positioned for the recovery.
I believe this opens up a good opportunity to buy DocuSign at what will ultimately prove to be a cheap price. Why? Because the steep growth of online document-signature services isn't only a pandemic-era trend.
During the stay-at-home era, many users discovered these for the first time and are now acutely aware of how useful and resource-saving they are. Demand for the ones DocuSign offers should grow, if anything, even when we start filing back to the office -- perhaps even more, considering that we'll likely be busier there.
We can fully expect continued double-digit growth from DocuSign. The company managed to boost its revenue by 50% year over year to almost $512 million in its recently reported Q2 of fiscal 2022 -- which outpaced the growth rate in the same quarter of last year.
DocuSign is a young company offering services that are really only starting to rise in popularity, so it keeps landing in the red according to GAAP standards. But if we scroll down to the non-GAAP (adjusted) figures, the company is enjoying quite healthy profitability. Net income in said quarter rose dramatically to nearly $98 million for the quarter, from the year-ago $34.8 million.
Zooming out to the entirety of 2022, DocuSign is guiding for annual revenue growth of at least 43%, which more or less meets the average analyst estimate. The company didn't provide any bottom-line forecasts, but given the propulsive dynamics, we can expect further improvement in that line item, too.
The world is full of bureaucracy, and we'll never stop signing our names on the dotted line. What's changing is that the process is increasingly being done online. And very often, the company providing the digital means to do so is DocuSign.
Cathie's favorite Chinese stock?
Jeremy Bowman (JD.com): Cathie Wood made headlines in July when ARK Invest dumped much of its holdings in Chinese stocks following the bloodbath in Chinese tutoring companies like TAL Education Group and New Oriental Education Group after Beijing said those companies would have to become non-profits.
At the time, Wood argued that the Chinese stocks were experiencing a "valuation reset," adding, "From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down."
However, Wood did an about-face in August, plowing back into JD.com after the e-commerce company issued a strong second-quarter earnings report. Wood told Bloomberg of her renewed optimism on the China market: "I'm not pessimistic about China longer run because I think they're a very entrepreneurial society."
JD has been a popular choice for ARK Invest in recent weeks, as it now holds about 2.5 million shares of JD across its funds worth about $200 million.
It's easy to see why Wood likes JD. As China's biggest online and overall retailer, the company offers both high growth and is penetrating a huge market. China is both the world's biggest e-commerce and retail market and is expected to be the biggest economy in the world in the next 10-20 years.
JD posted 26% growth to $39.3 billion in its most recent quarter, and its revenue mix is gradually shifting to higher-margin services businesses like logistics and its third-party marketplace. In direct retail, it's also diversifying beyond its origins as a retailer of electronics and appliances into general merchandise, including consumables like groceries and pharmacy, tapping into a huge addressable market. JD has built up a vast network of warehouses that rivals Amazon, and has also developed cutting-edge logistics technology including a fully automated warehouse with just four employees and self-driving vehicles that deliver packages.
With that kind of technology, a large market to penetrate, and a strong track record of growth, it's easy to see why JD is one of Wood's favorite Chinese stocks.
Controlling the living-room entertainment experience
Neil Patel (Roku): It should surprise absolutely no one that streaming-video entertainment is becoming increasingly popular, a trend that was further propelled by the pandemic. The U.S., for example, is forecast to have just 60 million cable-TV households in 2025. That's down from nearly 100 million in 2015, and Roku is shaping up to be the main beneficiary of this cord-cutting shift. As the third-largest holding in Cathie Wood's Ark Innovation ETF, this streaming stock has the chance to really move the needle for her company's (and your) portfolio.
What makes Roku really stand out is that it doesn't matter which content service, be it Netflix, Walt Disney's Disney+, or Amazon Prime, ultimately ends up with the most subscribers. Roku will gain no matter what.
Founder and CEO Anthony Wood has essentially built a three-sided platform business that connects the previously mentioned content companies with viewers who want access to all their favorite shows and movies in one place. And organizations looking to target these customers with advertisements also come to Roku to attract audiences that they can't reach on traditional TV. Consequently, Roku's competitive strength lies in its powerful network effects, where the addition of more users boosts the value for others.
People tend to stream content primarily on televisions, and this plays directly to Roku's benefit. More than one-third of new smart TVs sold in the U.S. come with Roku's software already built in. As consumers continue moving away from their outdated, expensive, and user-unfriendly cable subscriptions to streaming video, Roku will keep flourishing. With 55.1 million active accounts that streamed a whopping 17.4 billion hours of content last quarter, Roku is increasingly becoming the leading TV operating system controlling our living rooms in a streaming world.
Revenue in the most recent quarter jumped 81% year over year, and management expects sales in the current quarter to be 51% higher than in Q3 2020. This demonstrates the remarkable growth this $43 billion business is still registering. Roku's forward price-to-earnings and price-to-sales ratios of 247 and 15, respectively, certainly don't scream buy at first glance. But consider the fact that today there are just over 1 billion cable-TV subscriptions worldwide. This means Roku still has a massive opportunity globally to gain more active accounts on its platform as people cut the cord and adopt streaming.
As the company continues implementing the strategic playbook that has worked so well domestically to international markets, expect Roku's stock price -- and your retirement savings -- to march higher over time.