In the words of Benjamin Franklin, "An investment in knowledge pays the best interest." When it comes to buying stocks, separating the long-term winners from the losers is something of a learning process -- no investor is perfect or bats a thousand every time. One way you can sharpen your investing chops is to evaluate the strategies of well-known investors and fund managers and incorporate them into your own personal stock-buying thesis.
One of my favorite examples of an investor who has marked legendary wins over the years is Cathie Wood, founder and CEO of ARK Invest. Wood's firm manages a robust stable of exchange-traded funds. One of the most well-known of these funds is the ARK Innovation ETF (ARKK 1.05%), which has delivered shareholders a return of more than 120% over the trailing 12 months alone.
Today, we're going to take a look at three of Cathie Wood's favorite stocks that rank in ARK Innovation ETF's top five holdings. These high-growth stocks have flourished throughout the market insanity of the past year and continue to be compelling plays for long-term investors.
Without further ado, let's jump right in.
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1. Teladoc
The demand for digital healthcare solutions has skyrocketed during the pandemic, and as the top telehealth provider in the world, Teladoc's (TDOC -2.40%) customer base and its balance sheet jumped in kind. Investor interest in Teladoc also hit all-time highs in the earlier days of the pandemic as widespread lockdowns ushered in the era of stay-at-home stocks.
Now that the world is slowly transitioning back to the new normal, some investors are in doubt about Teladoc's continued growth prospects in a post-pandemic world. And shares of Teladoc have dropped in recent months -- the stock is down about 17% year to date.
But it's also worth noting that the hype surrounding stay-at-home stocks was unlikely to last forever. And Teladoc isn't any less of a quality company than it was a few months ago just because its price has retracted to what I would argue is a far more reasonable valuation.
Telehealth is a multibillion-dollar industry that is growing at a rapid pace and in which Teladoc is the clear market leader. The company's acquisitions of Livongo and InTouch Health last year further established its dominance of this industry, which is expected to hit a global valuation of $70.2 billion by the year 2026.
In addition, Teladoc had a solid track record of growth to its name well before the pandemic. In 2018, the company's revenues grew by an eye-popping 78%, and Teladoc generated a robust 32% revenue growth in 2019.
Following an incredible year in 2020 -- during which its revenue increased by nearly 100% and total visits on its platform jumped by more than 150% -- Teladoc's first-quarter 2021 performance continued this amazing streak. During that three-month period, Teladoc's revenues increased by 151% and it reported 56% more visits on its platform than in the year-ago period.
Teladoc may not deliver the same kind of portfolio returns to shareholders over the next few years as it did during the pandemic. However, its ability to consistently generate sustainable growth as it expands its market share and balance sheet -- and capitalizes on surging demand in the field of digital healthcare -- makes Teladoc a golden egg you can buy and hold in your basket for decades.
2. Square
Square (SQ 2.32%) has proven itself to be an unstoppable growth stock over the past year. This is due to the non-cyclical nature of its products and services, which can be boiled down into two key categories: its Cash App ecosystem and its seller ecosystem.
Square's Cash App lets you do everything from sending and receiving money to trading stocks, while its seller ecosystem encompasses an array of both software and hardware that helps companies to run their businesses more efficiently, whether as a brick-and-mortar entity or online.
From hardware solutions like a contactless and chip card reader to a family of point-of-sales systems that help the seller do everything from tracking inventory to selling physical goods to various payment processing solutions, Square positions itself as a one-stop shop for businesses of all sizes in any industry.
As the world took a giant leap toward an increasingly digital future amid the pandemic and months of extended lockdowns, Square's ability to meet the rapidly changing needs of its customers helped it achieve above-average balance sheet growth in 2020. The company reported that its total gross profits surged 45% to just shy of $3 billion last year. Its Cash App produced 168% gross profit growth, while Square's seller ecosystem saw gross profits jump by a respectable 8%.
In the first quarter of 2021, Square said that its total gross profits surged 79% while gross profits attributed to the Cash App spiked 171% from the year-ago period. And its seller ecosystem saw a notable surge in gross profits to the tune of 32% in the three-month period.
Analysts are projecting that Square will continue to deliver robust financial performance in the coming years. Over the next five-year period alone, they estimate that the company can generate more than 56% average annual earnings growth.
Beyond Square's balance sheet, it's also seen impressive share price gains since the pandemic began: The stock is up 141% from just one year ago. The consistent and durable demand for Square's products and services make it one of today's top stocks to buy in the fintech space. If you're looking for long-term upside potential and rock-solid business resilience in times of both economic storms and calm, Square delivers on both counts.
3. Zoom
At this time last year, Zoom (ZM 1.57%) was one of the stay-at-home stocks that investors just couldn't stop talking about. For the millions of people around the world stuck at home for prolonged periods who needed to do everything from work to school to social gatherings completely online, Zoom's platform was a go-to choice.
In 2020, which Zoom reported as its fiscal 2021, the company's revenues grew by an incredible 326% to $2.7 billion. Its net income rose even higher -- approximately 3,000% from the prior year.
As the economy, schools, and workplaces have reopened in many places, shares of Zoom have slowly retracted in recent months. Even so, the stock is still trading about 54% higher than one year ago, and is up approximately 4% year to date. And Zoom's balance-sheet growth isn't slowing down either as much of the world slowly moves toward the new post-pandemic normal.
During the first quarter of Zoom's fiscal 2022 (ended April 30), the company reported that its revenue spiked 191% from the year-ago period. The company also said that it grew its base of customers with over 10 employees to just shy of the half-million mark in the first quarter, a striking 87% year over year. Zoom's first-quarter net income also surged exponentially, up more than 740% year over year.
CEO Eric S. Yuan commented about the company's performance in the first quarter: "Our steadfast commitment to empowering customers to work and learn from anywhere with our expansive, innovative, and frictionless video communications platform continued to drive our results." He continued: "With this solid start, we are pleased to raise our total guidance range to $3.975 billion to $3.990 billion for the full fiscal year."
Zoom's mouthwatering financial performance at the height of the pandemic, as well as in the current transition period to the new normal, is an excellent sign of its resilience -- as both a business and an investment.
As more and more companies move to hybrid or fully remote work arrangements for their employees, Zoom should see continued spikes in users and revenue. According to a 2020 study by research and advisory company Gartner, "82% of respondents intend to permit remote working some of the time as employees return to the workplace." Zoom's growth story is far from over, and it's definitely not too late for investors to take advantage of the stock's considerable upside potential.
