Ark Invest CEO Cathie Wood has caused a stir during the pandemic. In 2020, the Ark Innovation ETF soared 149%, fueled by its exposure to growth stocks in a range of trending industries, from e-commerce and communications software to telemedicine and electric vehicles. Despite falling 68% from its peak, the Ark Innovation ETF still outperformed the overall S&P500 since its creation in 2014.
You’re here (TSLA 1.24%) and Focus on video communications (ZM 2.78%) currently account for more than 12% of Ark’s portfolio across all of its ETFs, implying strong belief in both companies. Should these stocks be in your portfolio?
It wasn’t that long ago that the auto industry behemoths paid little attention to Tesla, and they certainly didn’t see the company as a threat. An old Daimler The president even said that Tesla was a joke compared to the big German automakers. But the narrative has changed dramatically in recent years. Case in point: Tesla again led the electric car industry in terms of sales during the first quarter, capturing more than 15% market share.
The future of the auto industry is undoubtedly electric, and Tesla was built from the ground up to make electric cars. To that end, while traditional automakers like Ford Motor Company and General Motors are investing billions of dollars just to catch up, Tesla is refining manufacturing efficiency and aggressively investing in complete self-driving (FSD) and battery cell technology.
Tesla has delivered a stunning financial performance over the past year. Revenue soared 73% to $62.1 billion, operating margin reached an industry-high 15.5% and free cash flow soared by 188% to $6.9 billion. These results are particularly impressive in light of the inflationary environment, chip shortages and supply chain disruptions that have tested the entire automotive industry.
Shareholders have many reasons to be enthusiastic. Tesla is currently ramping up production at new factories in Texas and Germany, the latter helping to reduce logistics costs by localizing its European operations. The company also has several new vehicles slated for production in the coming years, including the Cybertruck and Semi in 2023, and a dedicated robotaxi in 2024.
However, CEO Elon Musk sees FSD technology as the auto industry’s long-term profit engine. Eventually, Tesla plans to launch an autonomous transportation platform, entering a market that Ark Invest predicts could generate $2 trillion in profits per year by 2030. Musk also believes Optimus – the robot Autonomous humanoid debuted at Tesla’s latest AI Day event — will end up being bigger than the auto industry.
In many ways, Tesla is trading at an outrageous valuation, although its price-earnings-growth (PEG) ratio is currently lower than that of the broader Dow Jones Industrial Average. Either way, the company is an innovation powerhouse that could reshape multiple industries. If you can handle a bumpy ride and are prepared to hold out for the long haul, I think it’s worth buying a few shares of this growth stock.
2. Zoom Video Communications
Zoom is disrupting the business communications market. Its cloud platform unifies video, phone, chat and event management solutions, and the company recently added contact center and conversation intelligence services to its portfolio. Zoom also provides a suite of developer tools that allow customers to integrate its technology into third-party applications.
Its hugely popular video conferencing app, Zoom Meetings, has gained rapid adoption during the pandemic, and it still ranks as the leading video conferencing software on the market, according to the latest G2 Grid report. But Zoom Phone — a cloud-based phone system that simplifies remote working for employees and enables remote management for IT teams — is also catching fire with customers. The company hit 3 million seats sold last quarter, up from 1 million at the start of 2021.
Financially, Zoom is growing at a steady pace. Over the past year, the number of its business customers has jumped 26% to 198,900, and the average customer has spent 23% more. As a result, revenue jumped 29% to $4.2 billion and earnings under generally accepted accounting principles (GAAP) climbed 42% to $4.12 per diluted share.
Zoom’s leadership in the video conferencing space should help it capitalize on the growing popularity of remote and hybrid working. On that note, management pegs its market opportunity at $91 billion by 2025. And with stocks trading at 8.2 times sales – a bargain from their three-year average of 41.3 times sales – now is a good time to buy this growth stock.