From businesses operating in the final frontier to those offering innovative gene therapies, the exchange-traded funds (ETFs) that Cathie Wood manages offer investors a wide range of investment opportunities. For growth investors who want to follow in Cathie Wood's footsteps, however, the choices can seem overwhelming.
Two fool.com contributors have done the heavy lifting and combed through the Ark Invest ETFs. Trimble (TRMB 1.59%) and Heico (HEI -0.17%) are two stocks in the Ark Space Exploration & Innovation ETF that seem particularly appealing right now. Let's see why.
Trimble: A core holding for Cathie Wood
Lee Samaha (Trimble): As the top holding in the Ark Space Exploration & Innovation ETF, the positioning and workflow technology is a Cathie Wood favorite. It's also not the easiest business to understand. The company's latest results are a case in point. Its organic revenue growth of just 3% year over year isn't anything to write home about.
However, the number that matters and what management is focused on is its annualized recurring revenue (ARR). It's a figure created by annualizing the quarter's subscription, maintenance, and other recurring transaction revenue. It's a better way to estimate the long-run cash flow potential of the company. The good news is that ARR grew at a 14% rate in the quarter, and management continues to guide toward "mid-teens" organic ARR growth for the full year.
ARR growth matters more to Trimble than revenue growth because the company continues to move beyond its original role as a positioning data technology company (think points on a construction site, geospatial mapping, trucking fleet locations, or farming equipment in the field) toward modeling and analyzing the data created to produce actionable insights in real time. For example, a construction manager can receive real-time information after a structural component is added to a project.
In other words, Trimble is becoming more of a workflow partner, implying more recurring revenue, which is best measured in ARR. Wall Street analysts have ARR dropping into free cash flow generation of $656 million in 2023, followed by $743 million in 2024 and $909 million in 2025. Those are excellent growth figures and make its $13.77 billion market cap look a good value.
Heico: An aerospace stock that belongs on your radar
Scott Levine (Heico): Unlike the many upstarts found in Cathie Wood's ETFs, Heico, also found in the Ark Space Exploration & Innovation ETF, is a well-established business. Founded in 1957, Heico is a global leader in aircraft replacement parts, and it also manufactures electronic components -- among other types -- found in a range of applications, including defense, medical, and telecom.
For more than 30 years, Heico has demonstrated considerable growth on both the top and bottom of the income statement. From 1990 to 2022, for example, Heico achieved an impressive 15% compound annual growth rate (CAGR) with regard to revenue, while the company increased its net income at an 18% CAGR during the same period. According to management, one of the key drivers of the company's strong growth over the past 30 years is its acquisition strategy, which has resulted in the company completing 95 acquisitions since 1990. Unlike some aggressive companies that jeopardize their financial well-being by relying heavily on leverage to pursue acquisitions, Heico has adopted a more conservative approach. At the end of 2022, Heico's net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio was only 0.25.
As one of the premier providers of aircraft replacement parts as well as niche components used in other advanced applications, Heico is a company that should continue to see strong demand for its products. And with the space economy beginning to blossom, Heico has the opportunity to see additional growth. For forward-looking investors interested in the security of an aerospace industry stalwart, Heico is a must-have stock to pick up right now.
Should you follow Cathie Wood and buy these stocks now?
Blindly following famous investors and buying the stocks that they themselves own can be a risky investing strategy. With regard to Trimble and Heico, though, either stock -- or both -- would be a wise consideration right now. While neither stock is hanging on the discount rack, both Trimble and Heico have significant opportunities to provide market-bearing returns over the long term. Nonetheless, for those who are slightly more conservative, Heico may be more appealing, considering its judicious use of leverage as well as its consistent revenue and net income growth.
