Cathie Wood's ARK exchange-traded funds (ETFs) own stocks that were some of the best performers in the 2020-21 growth-stock boom. However, many of them have underperformed the market as inflation and interest rates have risen and recession fears have weighed on the economy.
However, there are some Cathie Wood stocks, in particular, that could be worth a closer look at their current levels for patient, long-term investors. Here are two on my radar that could deliver excellent returns once economic worries, inflation, and interest-rate headwinds subside.
A winning fintech that still has strong momentum
Block (SQ 2.32%), formerly known as Square, is one of the largest holdings in Cathie Wood's ETFs, and ARK has added shares of the fintech giant recently. While the stock is down by 80% since its 2021 peak, there's a lot to like about where the business is now and where it's potentially going.
For example, in the second quarter, Block's gross profit grew by 27% year over year despite the challenging economic climate. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled from year-ago levels.
On the Square (business) side, the company's gross payment volume (GPV) is more than $215 billion on an annualized basis. The Cash App ecosystem continues to grow, as well, with 15% more users year over year and an all-time high of $53 billion in peer-to-peer volume in the second quarter.
Looking forward, there are several exciting opportunities. International growth is an especially big opportunity -- one that Block is capitalizing on well. Gross profit from outside the United States has roughly tripled in the past two years but still makes up just 16% of the company's total. And there are plenty of opportunities to add adjacent financial services to the Cash App and Square business ecosystems.
Could this be the way to play the metaverse?
Roblox (RBLX 1.35%) went public during the growth-stock boom but has fallen by about 81% from its highs. And to be fair, some of the company's recent results have been a bit disappointing. In the second quarter, it missed analyst expectations on both the top and bottom lines and reported a larger net loss than in the second quarter of 2022.
However, there's a lot to like about Roblox, especially from a long-term perspective. Even in the difficult second quarter, Roblox grew its bookings by 22% year over year and average daily active users (DAUs) jumped by 25% to 65.5 million.
This rapid user growth could amplify the platform's network effect. Plus, with metaverse technology still in its infancy and Roblox being the closest thing to a metaverse that's out there today, there could be long-tailed growth as the technology evolves. Experts expect the global metaverse market to grow from about $69 billion in size today to $1.3 trillion by 2030 -- and Roblox could be one of the biggest beneficiaries.
The road to success could be bumpy
If history has taught us anything about these two stocks, it's that they aren't for the faint of heart. On the way up in the pandemic-era boom, as well as on the way down when inflation and rising rates put an abrupt end to it, both of these have taken investors on quite a roller-coaster ride.
Although both stocks could handsomely reward investors who get in at these levels, it would be wise to plan on quite a bit of turbulence along the way.
