Insights

2 Stocks Warren Buffett and Cathie Wood Could Both Love

Cathie Wood and Warren Buffett have vastly different investing approaches. Wood is focused on growth and disruptive businesses, while Buffett values a strong track record and investments with good fundamentals. Often, these strategies don’t overlap.

However, there are a couple of stocks that could be a good fit for both of them. Intuitive Surgical (NASDAQ: ISRG) and Zoom Video Communications (NASDAQ: ZM) give investors strong fundamentals along with some attractive growth prospects. Here’s a closer look at why both Buffett and Wood could love these stocks.

1. Intuitive Surgical

Medical device company Intuitive Surgical could change the efficacy of hospital operations. Its da Vinci surgical systems use robots to help with the precision needed during surgery. The systems have the potential to be game-changers in the healthcare industry.

For Cathie Wood, this could make for an attractive growth stock to hold before the industry takes off; analysts from Market Study Report project that it will still be worth only a relatively modest $17.4 billion by 2028. It’s not hard to find businesses with larger market caps today. (Zoom, for instance, is already worth more than $30 billion.)

But Intuitive is more than just an attractive growth stock. This is a company that routinely posts a profit. In recent years, it has generated fairly stable gross margins and net profits:

ISRG profit margin (quarterly). Data by YCharts.

Over the trailing 12 months, Intuitive has also reported free cash flow of $1.4 billion. 

One knock on the stock is that its valuation isn’t cheap. At a multiple of 43 times earnings, this isn’t the type of value stock that Buffett might normally buy. But he does make exceptions in his Berkshire Hathaway portfolio.

It holds shares of Amazon, which trades at a multiple of more than 50 times profits right now. And in the past, it has been even more expensive. Buffett underestimated Amazon’s potential and said years ago that he was “too dumb” not to take advantage and buy the tech stock in its early days.

Intuitive is in its early days today, and while it might not be the next Amazon, it also has significant potential in its industry that could justify the high price tag.

2. Zoom Video Communications

Zoom is a favorite of Wood’s and it’s the top holding in her ARK Innovation ETF today. Stay-at-home orders during the pandemic led to a significant surge in the company’s business, which focuses on videoconferencing.

But with a return to normal in the economy taking place, the company’s growth rate has begun to sharply slow down:

ZM revenue (quarterly year-over-year growth). Data by YCharts.

For its current fiscal year, which goes until the end of January, the company projects revenue of around $4.5 billion. That would be just 10% higher than the $4.1 billion it reported in fiscal 2022.

With inflation and more employees working from home, however, there could still be strong demand for videoconferencing for the foreseeable future. Zoom’s growth will likely continue, albeit at a slower rate than in the past.  

The company’s business wasn’t profitable in its early years, but last fiscal year, its profit margin was an impressive 34% of revenue. Gross margins of 75% leave plenty of room for Zoom to be able to post a high net income even after its operating expenses.

And this is where it could easily attract the attention of a value investor such as Buffett. Growth plus strong margins can lead to higher profits down the road, making it a promising long-term buy. And at a price-to-earnings multiple of 27, the stock isn’t nearly as expensive as Intuitive Surgical. 

Zoom wouldn’t look out of place in Buffett’s or Wood’s portfolios. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway (B shares), Intuitive Surgical, and Zoom Video Communications. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info