For much of the second quarter, Cathie Wood-style growth stocks have been out of favour. With the global economy in recovery mode, investors have shunned high-growth stocks and turned their attention to reopening plays.
Recently however, Wood-style stocks have staged a huge comeback. This is illustrated by the fact that since mid-May, Wood’s flagship fund, the ARK Innovation ETF, is up nearly 25%.
I’m not bullish on most of her stocks as many are too speculative for my liking. That said, there are a number of stocks of hers I do like. Here’s a look at two I’d buy today.
A top Cathie Wood fintech stock
One of my favourites is PayPal (NASDAQ: PYPL), currently the fourth-largest holding in her FinTech Innovation ETF. The major payments company boasts nearly 400m active accounts (including 31m merchants) globally.
PayPal’s business has boomed during the pandemic as consumers have spent online and growth is showing no signs of slowing. In the first quarter of 2021, the company registered total payment volume of $285bn, up 50% year-on-year, and net revenue of $6.03bn, up 29% year-on-year. Non-GAAP earnings per share came in at $1.22, up from $0.66 a year earlier.
Looking ahead, I expect PayPal to continue growing at an impressive rate as the online shopping industry gets bigger. When PayPal’s products are available on an e-commerce website, consumers are nearly three times as likely to complete a purchase. So retailers really can’t afford to not offer PayPal as a payment option.
One risk to the investment case here is the threat of competition. PayPal operates in a highly-competitive industry and faces intense competition from the likes of Square, Visa, and Mastercard.
The stock’s valuation also adds risk. Currently, PayPal sports a forward-looking P/E ratio of about 60, which is high.
I’m comfortable with these risks however. In the long run, I expect this stock to deliver strong returns for investors as the world becomes more digital.
A healthcare stock for the digital age
Another Wood stock I’d buy today is Teladoc Health (NASDAQ: TDOC), which is currently the third-largest holding in the ARK Innovation ETF. It’s a leading provider of virtual healthcare services.
Virtual healthcare has seen a high level of adoption throughout the pandemic and I think it’s here to stay. It’s just so convenient. Of course, there are times when you need to see a doctor face-to-face. However, in many situations, a virtual consultation is perfectly adequate.
Teladoc’s first-quarter 2021 results were very strong. Revenue was up 151% year-on-year to $453.7m while total visits increasing 56% to 3.2m. The company said it expects total revenue for the year to range $1,970m-$2,020m, up from $1,094m last year. Teladoc noted it’s seeing “continued favourable consumer trends,” particularly among Millennials, who are showing a greater and sustained propensity to use digital health than other generations.
However, Teladoc isn’t generating a profit yet. In Q1, its net loss was $199.6m. This adds risk to the investment case. The stock’s high valuation (price-to-sales ratio of about 13) also adds risk.
But overall, I think the long-term risk/reward proposition here’s attractive. I’d buy this disruptive Cathie Wood stock today.
