Cathie Wood is the CEO of ARK Invest, an investment management firm that rose to prominence last year after several of its actively managed exchange-traded funds crushed the market. And while this performance was impressive, investors should remember that building wealth on the stock market generally requires longer than just one year.
Patience is key, and some of Cathie Wood's ETFs feature excellent long-term picks, too. Three that I think are worth buying and holding onto for decades are Veeva Systems (VEEV -0.29%), Vertex Pharmaceuticals (VRTX -1.02%), and Square (SQ -1.57%).
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1. Veeva Systems
Veeva Systems provides cloud-based solutions to companies in the life-sciences industry. This sector is notoriously difficult to navigate. For instance, drugmakers must follow a stringent set of regulations before they even start running human clinical trials for their products. For these companies, failure to comply with regulations can result in delayed drug launches (leading to loss of sales), or worse.
To make this process easier, Veeva Systems created a cloud-based platform that helps facilitate clinical trial management while ensuring regulatory compliance, among many other products. Veeva Systems' services primarily benefit from high switching costs, a powerful competitive advantage. Companies in the life-sciences industry that rely on Veeva's products risk severe disruptions to their day-to-day operations if they decide to switch.
Veeva Systems boasts quite a few big-name companies in its customer list, including Biogen, Vertex Pharmaceuticals, Eli Lilly, Moderna, Merck, and more. And Veeva's retention rate routinely falls in the 120% range. In other words, the company has successfully attracted high-profile clients, and it routinely adds new customers. The result: constant revenue and earnings growth.
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What's next for Veeva Systems? The company aims to generate $3 billion in annual revenue by 2025 as it continues to add new services to its portfolio and attract new clients. For its fiscal year 2021 ending Jan. 31, the company reported $1.5 billion in revenue, a 33% year-over-year increase.
Veeva Systems is also expanding beyond the life sciences sector and into the cosmetics, chemicals, and consumer packaged goods industries. The company estimates its total addressable market to be worth $12 billion -- and growing. Veeva might not capture this entire market, but I see the company's top and bottom lines maintaining their upward trajectory for many years to come.
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals has enjoyed a monopoly in the market for drugs that treat the underlying causes of cystic fibrosis for nearly 10 years. One of the company's latest approved drugs, Trikafta (which was approved in October 2019), can treat up to 90% of cystic fibrosis patients. There are 75,000 people with cystic fibrosis in North America, Europe, and Australia, and some investors might be worried that Vertex has already made significant headway into this market and that there isn't much upside left for the company.
But there is more to the story. First, sales of Trikafta will continue to grow. According to some estimates, the drug will generate $8.7 billion in sales in 2026, up from the $3.9 billion in revenue it racked up last year. Vertex also has promising pipeline candidates. The company's VX-548 is an investigational pain treatment in phase 2 testing that could hit the market within three years, pending regulatory approval.
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Then there is CTX001, a gene-editing therapy for sickle cell disease the company is developing in collaboration with Crispr Therapeutics. The current standards of care for sickle cell disease include blood transfusions, stem cell transplants, and various ways to manage pain episodes. CTX001 could eliminate -- or at least greatly reduce -- both pain episodes and transfusion requirements associated with sickle cell disease.
In a clinical trial, seven sickle cell disease patients treated with CTX001 were free of vaso-occlusive crises (a side effect of the disease characterized by acute pain) five to 22 months after treatment with the therapy. These patients averaged anywhere from 4.9 to seven vaso-occlusive crises before treatment. In April, Vertex's management said a regulatory filing for CTX001 could happen within 18 to 24 months.
In the unlikely case that none of its current programs pan out, investors can expect Vertex Pharmaceuticals to seek other avenues for growth. That's why as a shareholder, I intend to hold onto this biotech stock for a while.
3. Square
Banking services provide many benefits, including easier access to credit and convenient options to pay bills. Unfortunately, many communities are underbanked. Square, a company famous for its innovative point-of-sale systems, is going after these communities. The company is creating an ecosystem of users with its Cash App, which has evolved far beyond the peer-to-peer payment services it originally offered.
In many respects, Cash App is directly competing with traditional banks. It offers debit cards, direct deposits, and the option to invest in stocks, ETFs, and cryptocurrencies. Square recently made a big move that will help its banking ambitions. The company announced it would acquire buy now, pay later leader Afterpay in an all-stock deal valued at $29 billion.
The transaction is expected to close in the first quarter of the fiscal year 2022.
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This deal fits right into Square's mission, and then some. But let's not forget about Square's seller ecosystem, which also represents a growing opportunity. The tech giant estimates its total addressable market to be worth at least $145 billion in the U.S. alone. The market penetration for the services it provides remains very low. As of September of last year, it was less than 5%.
Moreover, Square's platform, particularly its seller ecosystem, benefits from high switching costs, which will help the company remain a significant player in this highly competitive industry. Last year, the company reported $9.5 billion in revenue. Making even modest headway within its large addressable market could help the company's top line double (or more) within the next decade. In other words, there are many years of growth ahead for the company. And even after crushing the market since its 2015 initial public offering, Square may just be getting started.
