After a brutal stretch of trading last year, Ark Invest CEO Cathie Wood is back to crushing the market in 2023. The famous growth investor's flagship ARK Innovation ETF is up roughly 37% year to date and has trounced gains for the benchmark S&P 500 index.
While the Ark Innovation ETF is largely built around growth stocks with explosive potential, the fund actually includes some stocks that continue to look cheap even after rallies this year. If your core financial bases are safely covered and you have $500 available to invest, read on to see why investing in these bargain Cathie Wood stocks could be a smart move.
1. Zoom Video Communications
Zoom Video Communications (ZM 0.81%) was a Wall Street darling when social distancing and other pandemic-related conditions drove surging demand for video communication services. But the company's valuation crashed after these tailwinds waned and investors generally became more cautious about growth stocks.
While some growth stocks have seen substantial recoveries in 2023, Zoom's share price is roughly flat on the year and still trades down roughly 88% from the lifetime high that it reached in October 2020.
ZM PE Ratio (Forward) data by YCharts
Zoom is the second-largest holding in the Ark Innovation ETF, trailing behind only Tesla in terms of portfolio weighting. Trading at roughly 16 times this year's expected earnings and 4.6 times this year's expected sales, the video conferencing stock looks like a smart buy-and-hold investment right now.
While Zoom's growth might look unimpressive compared to what it was serving up at the height of the pandemic, the company has continued to increase its sales and earnings. Revenue climbed roughly 3% year over year in the first quarter to reach $1.11 billion, and non-GAAP (generally accepted accounting principles) adjusted net income rose 12% to reach $353 million.
Zoom does face competition, but the company has built a comprehensive suite of communication tools tailored for the enterprise market. Enterprise segment revenue climbed 13% year over year to reach $632 million in Q1, and the number of customers generating more than $100,000 in trailing-12-month revenue was up 23% compared to the prior-year period.
With the company already enjoying solid momentum in the enterprise space and making moves to introduce new features and services powered by artificial intelligence, Zoom looks positioned to serve up steady growth. For growth investors looking for potentially explosive tech plays trading at non-prohibitive valuations, the stock has the markings of a worthwhile portfolio addition.
2. Roku
Like Zoom, Roku (ROKU 0.95%) is a formerly high-flying pandemic stock that saw its valuation crater as industry conditions shifted and macroeconomic pressures changed the landscape for growth stocks. Despite soaring 55% this year, the streaming technology company's share price is currently down 87% from the high it hit in July 2021.
ROKU PS Ratio (Forward) data by YCharts
Following the big valuation slide, Roku is now valued at roughly 2.7 times this year's expected sales. While the streaming leader isn't posting consistent profits, its forward price-to-sales ratio looks attractive in the context of the company's strong market positioning and remaining long-term growth opportunities.
Roku managed to add 1.6 million active accounts in the first quarter to reach 71.6 million, and total streaming hours increased roughly 20% to reach 25.1 billion. While the company's average revenue per user dipped 5% year over year to land at $40.67, the company was still able to grow revenue 1% to hit $741 million. Roku also remained the top operating system for smart TVs in the U.S., commanding 43% market share.
While macroeconomic pressures suggest that the digital advertising market may struggle over the next year, Roku's platform continues to look pretty solid and still has expansion potential ahead. Conditions for the digital ads market should eventually improve, and streaming TV will continue to gain share from cable and satellite.
Roku stands as the third-largest stock holding by weight in Wood's Ark Innovation ETF, and it presents a compelling risk-reward proposition for growth investors at current prices. If the streaming leader can continue to scale and effectively manage its cost structure, it could wind up delivering huge wins for patient investors.
