The Motley Fool

2 Top Growth Stocks That Are Part of Cathie Wood’s Portfolio

Image source: Getty Images

Ark Invest CEO Cathie Wood has grown in popularity over the last year, and for good reason. Wall Street investors have seen Ark Invest ETFs gain significant momentum since the pandemic-induced sell-off decimated equity markets in early 2020.

For example, Ark Innovation ETF is up 134% in the last 12 months and is up a stellar 581% since May 2016. Given these market-thumping returns, investors are closely following what Ark Invest is buying.

We look at two such stocks Cathie Wood is bullish on right now.

Shopify

Canada’s largest company in terms of market cap, Shopify (TSX:SHOP)(NYSE:SHOP) is part of the Ark Invest portfolio. Shopify recently reported its first-quarter 2021 results and crushed Wall Street estimates.

The company ended Q1 with 1.7 million merchants on its platform, allowing Shopify to grow sales by 110% year over year to US$988.6 million. Comparatively, its net income surged 11 times to US$254 million, indicating a net margin of a healthy of over 25%. Its gross merchandise volume or GMV, which is the total amount spent on the Shopify platform rose 114% to US$37.3 billion.

Shopify operates via an asset-light model, which has increased its profit margins at a higher rate compared to top-line growth. This meant Shopify’s debt stands at just US$909 million, while its cash balance is close to US$8 billion.

One of the major reasons for the increase in Shopify’s merchant base is its ability to integrate third-party applications on its platform. These applications include order fulfillment as well as multiple upsell features that it sells via subscription solutions. Shopify also facilitated around US$308 million in loans to merchants which were up over 100% year over year.

The COVID-19 pandemic accelerated the trend towards online shopping, which will benefit Shopify in 2021 and beyond. Shopify stock has returned 93% in the last year and a staggering 4,500% since its IPO back in May 2015. Despite its sky-high valuation, Shopify stock is a top bet for your growth portfolio.

Roku

Streaming company Roku (NASDAQ:ROKU) is another stock part of the Ark Invest portfolio. The company has grown its sales from US$512.8 million in 2017 to US$1.8 billion in 2020, indicating a compound annual growth rate of 51%. Comparatively, its free cash flow has risen from US$28.1 million to US$65.8 million in this period.

Similar to Shopify, the pandemic acted as a tailwind for streaming companies such as Roku as well. In the U.S., the number of streaming hours on Roku devices was up 55% year over year in Q4. Further, around 43% of broadband households in the U.S. that pay for cable TV may cut the cord and switch to streaming services over the next year, according to a report from Park Associates.

Roku is now expanding into international markets including Canada, Brazil, Mexico, and the U.K., which will drive top-line growth in the upcoming decade. It’s already the leading smart TV operating system in Canada and the U.S.

Analysts tracking Roku stock expects its sales to rise by 44.2% to $2.57 billion in 2021 and by 38% to $3.54 billion in 2022. While still unprofitable, Wall Street expects Roku to post earnings per share of $0.54 in 2022.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

David Gardner owns shares of Roku. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Roku, Shopify, and Shopify. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.