2 Cathie Wood shares to buy by show of hands

From companies operating on the last frontier to those offering innovative gene therapies, the exchange-traded funds (ETFs) managed by Cathie Wood offer investors a wide range of investment opportunities. However, for growing investors who want to follow in Cathie Wood’s footsteps, the options can seem overwhelming.

Two Fool.com contributors did the heavy lifting and reviewed Ark Invest ETFs. Trimble (TRMB -0.21%) and Heico (IES) 0.77%) there are two actions in the Ark Space Exploration and Innovation ETF that seem particularly attractive right now. Let’s see why.

Trimble: a core for Cathie Wood

lee samaha (Trimble): As the top holding in the Ark Space Exploration & Innovation ETF, positioning and workflow technology is a favorite of Cathie Wood. It’s not the easiest business to understand either. The company’s latest results are a good example. Their organic revenue growth of just 3% year-over-year is nothing to write home about.

However, the number that matters and what management focuses on is your annualized recurring revenue (ARR). It’s a figure created by annualizing subscription, maintenance, and other recurring transaction revenue for the quarter. It is a better way to estimate the long-term cash flow potential of the company. The good news is that ARRs grew at a rate of 14% in the quarter and management continues to target organic “mid-teens” ARR growth for the full year.

ARR growth is more important to Trimble than revenue growth because the company continues to expand beyond its original role as a positioning data technology company (reflection points on a construction site, geospatial mapping, fleet locations trucks or farm equipment in the field) towards modeling and analyzing the data created to produce actionable insights in real time. For example, a construction manager can receive real-time feedback after adding a structural component to a project.

In other words, Trimble is becoming more of a workflow partner, which means more recurring revenue, best measured in ARR. Wall Street analysts forecast the ARR to drop to free cash flow generation of $656 million in 2023, followed by $743 million in 2024 and $909 million in 2025. Those are excellent growth numbers and make that its market capitalization of $13.77 billion seems like a good value.

Heico: an aerospace action that should be on your radar

Scott Levine (Heico): Unlike the many startups found in the Cathie Wood ETFs, Heico, which is also in the Ark Space Exploration & Innovation ETF, is a well-established company. Founded in 1957, Heico is a world leader in aircraft replacement parts and also manufactures electronic components, among other types, found in a variety of applications, including defense, medical and telecommunications.

For more than 30 years, Heico has demonstrated considerable growth at both the top and bottom of the income statement. From 1990 to 2022, for example, Heico achieved an impressive 15% compound annual growth rate (CAGR) in revenue, while the company grew its net income at a CAGR of 18% over the same period. According to management, one of the main drivers of the company’s strong growth over the past 30 years is its acquisition strategy, which has led the company to complete 95 acquisitions since 1990. Unlike some aggressive companies that jeopardize their financial well-being by relying heavily on leverage to make acquisitions, Heico has taken a more conservative approach. At the end of 2022, Heico’s net debt-to-earnings before interest, tax, depreciation and amortization (EBITDA) ratio was just 0.25.

As one of the leading suppliers of aircraft replacement parts, as well as specialized components used in other advanced applications, Heico is a company that should continue to see strong demand for its products. And with the space economy beginning to flourish, Heico has an opportunity to see additional growth. For forward-thinking investors interested in the security of an aerospace industry stalwart, Heico is a must-buy stock right now.

Should you follow Cathie Wood and buy these stocks now?

Blindly following celebrity investors and buying shares that they themselves own can be a risky investment strategy. However, with respect to Trimble and Heico, either (or both) would be a good consideration at this time. While neither stock is on the discount shelf, both Trimble and Heico have significant opportunities to provide returns that benefit the market over the long term. However, for those who are a bit more conservative, Heico may be more attractive, considering its sensible use of leverage, as well as its consistent revenue and net profit growth.