Ark Invest CEO Cathie Wood has made a name for herself as an expert in picking high-risk, high-reward growth investments. Her big investment wins include buying Bitcoin when it was priced at roughly $250 per token and backing Tesla before it went on an explosive run.
If you're looking for stocks that have what it takes to be massive winners, read on to see why two Motley Fool contributors think you should take a couple of pages out of Wood's playbook for Palantir Technologies (PLTR 3.73%) and Zoom Video Communications (ZM 1.57%).
This AI leader could be poised for an incredible run
Keith Noonan (Palantir Technologies): Ark Invest has been pouring into Palantir Technologies. Across its various exchange-traded funds (ETFs), Wood's company added more than a million shares of the data-software specialist's stock last month. With demand for artificial intelligence (AI) services heating up and Palantir serving up encouraging business results, there are a lot of reasons to like the stock right now.
Palantir's sales grew 13% to reach $533 million in the second quarter, and its most recent guidance called for sales growth to accelerate to 16% in the third quarter. The company also announced early this month that it had won a $250 million contract with the U.S. Army for AI research projects.
Along with accelerating sales growth, Palantir has also been posting impressive margins. The company has recorded an adjusted free-cash-flow margin of 27% across this year's first half, and it has now delivered three consecutive quarters of profitability on the basis of generally accepted accounting principles (GAAP).
With roughly $3.1 billion in cash and short-term equivalents and zero debt, Palantir also has a very strong balance sheet. The company has now shifted into profitability on a GAAP basis, and that should help it continue to grow its cash pile over time. But it could also use its existing funds to pursue new growth opportunities or acquisitions that strengthen its core competencies or help it branch into new categories.
The data specialist has established itself as an early leader in analytics and AI services for the public and private sector. There's a good chance that it's still in the very early stages of benefiting from long-term AI demand tailwinds. With the stock still down 54% from its high, now looks like a good time for risk-tolerant investors to build a position in Palantir.
A pandemic winner is selling at a discount
Parkev Tatevosian (Zoom Video Communications): Zoom is one of my favorite beaten-down growth stocks that Cathie Wood owns. The pandemic beneficiary has seen its stock price fall more than 88% off its high.
A price correction is understandable, considering people are no longer using Zoom as heavily as they were during the worst stages of the pandemic. Still, I believe the sell-off is overdone, and investors can feel good about buying Zoom stock at these valuations.
Importantly, while the use of Zoom Video declined in the aftermath of the economic reopening, revenue did not decrease. Sales soared from $331 million in 2019 to $4.1 billion in 2022. Surprisingly, it grew further in 2023 to $4.4 billion.
That's likely due to how popular remote work is for folks. Businesses have tried to lure employees back to the office, but the convenience of working from home has made it difficult. The middle ground has been a hybrid solution that has people working from home at least one day per week.
ZM PS ratio data by YCharts. PS = price-to-sales.
That isn't to say Zoom hasn't felt the downside of the economic reopening. Indeed, its operating income fell from $1 billion in 2022 to $245 million in 2023. The company is still growing sales but is working harder to close deals. Employing a larger sales team, offering incentives to clients, and extended sales cycles have all contributed to Zoom's falling profit.
Still, Zoom's valuation has more than accounted for the challenging conditions. At a price-to-sales multiple of 4.4, Zoom is selling at a fraction of its valuation at the peak.
