Following our three-part series on dividends and value, it’s time to switch gears and search from a different perspective. We’re going for growth this week by screening the constituents of Cathy Wood’s ARKK ETF. The ETF’s theme is “disruptive innovation”- per ARK’s webpage:
ARK defines “disruptive innovation’’ as the introduction of a technologically enabled new product or service that potentially changes the way the world works.
Companies within ARKK include those that rely on or benefit from the development of new products or services, technological improvements, and advancements in scientific research relating to the areas of:
- DNA Technologies and the “Genomic Revolution”
- Automation, Robotics, and Energy Storage
- Artificial Intelligence and the “Next Generation Internet”
- Fintech Innovation
Thus, the stocks in our initial scanning populations have already garnered expectations for high growth. Our objective is to identify five constituents offering growth at a (somewhat) reasonable price. We utilize the r-squared of 5y sales growth to check for consistency in sales growth. The closer to 1, the more consistent growth was over the period.
We considered the following factors when screening:
- Sales Growth past 5y > 25%
- P/S < 5
- EPS Growth past 5y > 0%
The screen criteria seem simple but recall that ARKK is a portfolio of high growth stocks. We filtered out those stocks with lofty valuations and insufficient historical data and arrive at the five stocks shown below.
Invitae Corporate (NVTA)
ROKU, Inc (ROKU)
Block, Inc. (SQ) – Formally known as Square
Cerus Corporation (CERS)
Zoom Video Communications (ZM)
Five for Friday
Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast.
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.