When you hear the name Cathie Wood, you immediately gravitate to next-gen growth stocks with sky-high multiples and boom-or-bust prospects. It's a fair assessment. The CEO, co-founder, and chief stock picker for the ARK Invest family of exchange-traded funds (ETFs) had a spectacular run in 2020 when the market rallied around disruptive growth stocks.
Her returns have lagged the market badly over most of these last two years, but it doesn't mean that you want to dismiss her shot at pulling another 2020 out of her pocket. She continues to buy some of the most dynamic publicly traded companies, but she also has some investments that could be considered bargains right now. Roku (ROKU 1.91%), Deere & Company (DE 0.94%), and Zoom Video Communications (ZM 1.46%) are three of her holdings that I think are bargains right now.
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1. Roku
If you define bargains solely on profit multiples, you might be tempted to change the channel when it comes to Roku. The once-profitable leader of streaming video is in the red, and Wall Street pros see the losses continuing until 2026.
But the stock has never been cheaper based on its revenue multiple. Toss in a strong cash-rich balance sheet, and Roku is trading at an enterprise value that is less than two times trailing revenue for the first time in its history.
Roku is still growing. Active users, hours streamed on the platform, and average revenue per user all increased by healthy double-digit percentages in its latest quarter. Its latest guidance suggests that there will be some near-term challenges to its ad-dependent business model, but the loudest bear argument -- that we won't stream as much with the pandemic fading in the rearview mirror -- has proved to be toothless. Roku stock is down nearly 90% from last year's peak, but its business is holding up a lot better than its stock chart.
2. Deere
Wood doesn't mind buying an old company if it's teaching the world new tricks. Deere has been a titan in agricultural, commercial, and construction equipment for generations.
Unlike many of her investments, this one packs a dividend and a reasonable earnings multiple into its value proposition. The 1.2% yield isn't going to turn heads these days, but Deere is trading for less than 17 times the midpoint of its earnings guidance for the current fiscal year. Wall Street analysts have it trading at just 14 times next year's profit target.
Deere's business initially took a hit at the first whiff of the pandemic, but it's been rolling ever since. At the end of this month, it will conclude its second fiscal year of double-digit revenue growth. Margins are holding up despite all of the world's distractions. The outlook is positive for the next few years despite all of the current global calamity. Farms still need to be tended to, since we all have to eat.
There may be a cyclical bent to its smaller forestry and heavy construction equipment segments, but money will eventually be spent on those fronts.
3. Zoom Video
Let's close out with the videoconferencing leader that has a bit of the bargain traits of the two stocks I mentioned earlier.
Like Roku, Zoom Video is a bargain because it's trading well below its high-water mark. The shares have fallen 87% since peaking two years ago. Like Deere, this stock fetches a reasonable earnings multiple. Zoom Video can be had for just 15 times last fiscal year's earnings, but -- and this is important -- unlike Deere, the bottom line is going the wrong way. Zoom Video is trading for less than 20 times forward earnings expectations.
Deceleration has been brutal at Zoom Video since the initial popularity burst when shelter-in-place mandates kicked in. It helped us learn, work, and socialize when getting together in person wasn't safe or feasible. Zoom Video will want to get its brake pads checked after how quickly the former speedster slammed on the brakes. The past six quarters of year-over-year revenue deceleration have been brutal.
- Q4 2021: 369%
- Q1 2022: 191%
- Q2 2022: 54%
- Q3 2022: 35%
- Q4 2022: 21%
- Q1 2023: 12%
- Q2 2023: 8%
Guidance it issued last time out calls for the slowdown to continue, as it eyes a mere 5% increase in revenue for the current fiscal quarter. Profitability has been contracting, but companies keep investing in a healthy Zoom presence given a net dollar-based expansion rate above 120%.
Casual users might have forgotten their Zoom log-ins, but the high-tech telecom stock is still investing on platform enhancements. The company also has a cash-rich balance sheet, so it's already-low P/E ratio is even lower if we go by enterprise value instead of market capitalization.
