Cathie Wood and Warren Buffett have vastly different investing approaches. Wood is focused on growth and disruptive businesses, while Buffett values a strong track record and investments with good fundamentals. Often, these strategies don't overlap.
However, there are a couple of stocks that could be a good fit for both of them. Intuitive Surgical (ISRG 2.39%) and Zoom Video Communications (ZM 3.54%) give investors strong fundamentals along with some attractive growth prospects. Here's a closer look at why both Buffett and Wood could love these stocks.
1. Intuitive Surgical
Medical device company Intuitive Surgical could change the efficacy of hospital operations. Its da Vinci surgical systems use robots to help with the precision needed during surgery. The systems have the potential to be game-changers in the healthcare industry.
For Cathie Wood, this could make for an attractive growth stock to hold before the industry takes off; analysts from Market Study Report project that it will still be worth only a relatively modest $17.4 billion by 2028. It's not hard to find businesses with larger market caps today. (Zoom, for instance, is already worth more than $30 billion.)
But Intuitive is more than just an attractive growth stock. This is a company that routinely posts a profit. In recent years, it has generated fairly stable gross margins and net profits:
ISRG profit margin (quarterly). Data by YCharts.
Over the trailing 12 months, Intuitive has also reported free cash flow of $1.4 billion.
One knock on the stock is that its valuation isn't cheap. At a multiple of 43 times earnings, this isn't the type of value stock that Buffett might normally buy. But he does make exceptions in his Berkshire Hathaway portfolio.
It holds shares of Amazon, which trades at a multiple of more than 50 times profits right now. And in the past, it has been even more expensive. Buffett underestimated Amazon's potential and said years ago that he was "too dumb" not to take advantage and buy the tech stock in its early days.
Intuitive is in its early days today, and while it might not be the next Amazon, it also has significant potential in its industry that could justify the high price tag.
2. Zoom Video Communications
Zoom is a favorite of Wood's and it's the top holding in her ARK Innovation ETF today. Stay-at-home orders during the pandemic led to a significant surge in the company's business, which focuses on videoconferencing.
But with a return to normal in the economy taking place, the company's growth rate has begun to sharply slow down:
ZM revenue (quarterly year-over-year growth). Data by YCharts.
For its current fiscal year, which goes until the end of January, the company projects revenue of around $4.5 billion. That would be just 10% higher than the $4.1 billion it reported in fiscal 2022.
With inflation and more employees working from home, however, there could still be strong demand for videoconferencing for the foreseeable future. Zoom's growth will likely continue, albeit at a slower rate than in the past.
The company's business wasn't profitable in its early years, but last fiscal year, its profit margin was an impressive 34% of revenue. Gross margins of 75% leave plenty of room for Zoom to be able to post a high net income even after its operating expenses.
And this is where it could easily attract the attention of a value investor such as Buffett. Growth plus strong margins can lead to higher profits down the road, making it a promising long-term buy. And at a price-to-earnings multiple of 27, the stock isn't nearly as expensive as Intuitive Surgical.
Zoom wouldn't look out of place in Buffett's or Wood's portfolios.
