A lot of Cathie Wood's favorite stocks kicked off this holiday-shortened trading week by moving sharply higher. Is her style of growth investing finally in style? There's no denying that the chief stock picker of ARK Invest has hit a rough patch after a spectacular 2020. If sentiment is turning her way again, you will want to pay attention.
Roku (ROKU 0.15%), Deere (DE -0.65%), and Zoom Video (ZM 0.05%) are some of the stocks playing big roles in the ARK Invest family of exchange-traded funds. Let's see why these three investments can deliver superior returns.
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Roku
We're streaming a lot of TV these days, and no one knows this better than Roku. It had a record 61.3 million accounts at the end of March, and these aren't dormant homes. Roku users are streaming an average of 3.8 hours of content a day. As the leading operating system for smart TVs, Roku is taking advantage of the pole position by monetizing its free platform. Average revenue per user is up 34% over the past year as advertisers pay up to reach Roku's engaged viewers.
Roku shares have fallen precipitously since last year's peak, but that 82% drop could also be a buying opportunity. The initial bearish thesis -- that we would be streaming less once the biggest threat of the pandemic passes -- hasn't played out. Streaming hours on Roku are up 14% over the past year. The new fear, that a recession will lead to advertisers paring back their spending, could also prove hollow. Traditional advertising will take a hit, but there are a growing number of premium streaming apps that will pay to get noticed on the country's leading streaming platform. Roku should hold up just fine.
Deere
Wood loves disruptors, but that doesn't mean that she will shy away from a 180-year-old company that's been a leader in agricultural, commercial, and construction equipment for as long as most of us have been alive. Farm tractors and construction-site-clearing backhoes may not seem cutting edge, but Deere fancies itself a leader in tech, automation, and even artificial intelligence.
Revenue rose 24% in fiscal 2021, admittedly off depressed single-digit top-line growth the prior year. Analysts still see Deere's top line growing 18% this year and 11% in fiscal 2023. The shares are trading for just 12 times this year's projected profit. There's also a 1.6% yield, making this one of Wood's rare holdings that pay a quarterly dividend.
Infrastructure will continue to be a global theme for the next few years. An iffy economy may slow the place of the building and rebuilding, but Deere is in the right place as it waits for the right time.
Zoom Video
Wood doesn't shy away from adding to her declining positions, and that explains why her largest position is actually one of her worst performers. Zoom Video is the biggest stake across all of ARK Invest ETFs by market cap. She now owns nearly $1 billion worth of the videoconferencing giant, more than 3% of Zoom's total shares outstanding.
The stock that took off early in the pandemic as offices, classrooms, and social gatherings went virtual has struggled since last year's availability of vaccinations had us returning to work, school, and local hot spots. Zoom has shed 80% of its value since peaking in late 2020, but it's not as if the business itself has deteriorated to that point.
Growth has slowed, but Zoom's model is still moving in the right direction. Revenue rose 12% in its latest quarter. Earnings exceeded expectations, just as we've seen over the past year despite the shrinking share price. Zoom also offered rosy guidance for the current quarter while also boosting its outlook for the entire fiscal year.
We're still turning to the convenience of virtual meetings. Zoom is a part of our communications arsenal now. Zoom's net dollar expansion rate over the past 12 months for enterprise customers is clocking in at 123%, meaning that enterprise clients are spending 23% more on the platform than they were a year ago. We've also seen the number of customers spending at least $100,000 on Zoom grow by 46% over the past year. Zoom may no longer be the high-octane growth stock it was when the stock was peaking, but it's surprisingly reasonably priced now. It trades for 28 times trailing earnings, but the math gets better. Back out Zoom's strong net cash position and it's fetching an earnings multiple of just 23 based on its enterprise value.
