After a brutal 2022, Cathie Wood's Ark Innovation ETF experienced its best month in its history amid the January rally. That flagship ETF increased by aboput 28% that month.
This increase was primarily thanks to growth tech stocks, which experienced a significant recovery. The rebound presents an opportunity for small investors, and even with a modest budget like $500, you can earn significant returns over time by following Wood into stocks like Roku (ROKU -8.66%) and Shopify (SHOP 0.93%).
1. Roku
One of the stocks that may be a surprise "bargain" is Roku. A tech darling during the pandemic, the entertainment stock would go on to fall by more than 90% as investors spent less time online following the end of lockdowns.
Still, investors should remember that Wood usually invests in technologies that drive the future. In North America, Roku has led the transition from traditional to streamed television programming, and growth in this area means the investment thesis likely remains intact.
Moreover, it looks increasingly like analysts and shareholders may have overreacted to the slowing. In 2022, active accounts rose 16% to about 70 million.
Over the same period, the average daily time on the platform rose to 3.8 hours globally versus 3.6 hours in 2021. This increase also coincided with the release of the first-ever Roku branded television.
That new programming could help reverse the declines in device revenue, though overall revenue grew 13% to more than $3.1 billion in 2022. Unfortunately, the company turned back to losses amid massive increases in operating spending. Roku lost $498 million in 2022 versus a $242 million profit in 2021.
Still, that spending could bolster its products, a factor that could boost profitability later. As conditions stand now, Roku expects to turn EBITDA positive in 2024.
Moreover, after its massive decline, the stock climbed more than 80% since reaching that multi-year low, and at a price-to-sales (P/S) ratio of 3, remains inexpensive. Given its recovery and prospects for growth, even investors with a $500 budget might consider adding a few shares.
2. Shopify
Like Roku, Shopify looked like the last stock one would find in the bargain bin in 2021. That year, it reached a split-adjusted high of $176 per share before dropping with its tech counterparts, falling by more than 85% at one point.
Now, it has more than doubled from its September low. This recovery has occurred as e-commerce growth has begun to level out from the front-loaded growth in 2020 and 2021 and subsequent slowdown in 2022. Also, Shopify recently implemented huge price increases, a likely testament to its growing popularity and power in the marketplace.
But even with that decline, revenue for 2022 came in at $5.6 billion, a 21% increase from 2021 levels. The merchant solutions segment, which offers support services for its customers, drove most of that growth.
That revenue also grew as the company rolled out numerous solutions to help foster customer relationships with merchants and help sellers better manage inventory and back-office operations. Thus, investors should feel heartened that the innovation that attracted Wood to the stock continues.
Despite this increase, Shopify went from profit to loss, losing almost $3.5 billion in 2022. In a bid to expand its business, especially the buildout of its fulfillment network, both costs and expenses rose more quickly than revenue.
Still, that investment will likely help drive profits higher in future years. Additionally, Shopify's P/S ratio of around 10 is far below the 60 sales multiple, where the stock often traded in 2021. With its much lower stock price, even budget investors can take advantage of the opportunity in Shopify stock.
