One of the keys to successful investing is holding shares of great companies for five or more years. And if you're looking for excellent stocks to own, it might be worth getting some inspiration from one of the most recognizable names in the investing world right now: Cathie Wood, founder and CEO of ARK Invest.
Wood's actively managed, exchange-traded funds feature some great buy-and-hold stocks. Two I'd like to talk about today are Teladoc Health (TDOC 0.69%) and PayPal (PYPL -4.93%). Let's see why both of these growth stocks are worth considering for your portfolio.
Healthcare stock Teladoc has fallen on hard times lately. Shares of the company are down about 35% since the beginning of the year. We can attribute this decline in part to the market shifting away from high-growth, premium-priced stocks. But for investors focused on the long game, Teladoc remains a great option thanks to its leadership in the telemedicine industry.
Teladoc offers patients some traditional healthcare services (such as consultations, prescriptions, and referrals) from the comfort of their homes, 24 hours a day, and seven days a week. While the pandemic helped increase the adoption of telehealth services, they are now clearly here to stay. In a nationwide poll of 1,800 patients last year by Doctor.com, 83% said they would turn to telemedicine after the pandemic.
Teladoc already serves some notable clients, including more than 50% of Fortune 500 companies.
One of the company's appeals is its vast network of more than 50,000 clinicians and 450 subspecialties. Teladoc is building a competitive edge known as the network effect. As its network of healthcare professionals grows, its platform becomes more attractive to potential customers, leading more clinicians to join the network. Expect Teladoc's total visits and top line to continue growing.
The company sees a $250 billion market opportunity in the U.S. alone. Teladoc's revenue for the second quarter ended June 30 came in at $503.1 million, more than double what it did in the year-ago period. If the company manages to capture even a fraction of its addressable market, it will likely more than triple its annual revenue within the next decade.
That's why this healthcare stock is worth considering as a long-term holding for the next 10 years.
2. PayPal Holdings
Digital payments pioneer PayPal first grew in stature thanks to its association with eBay. The company earned tremendous name recognition while serving as the go-to payment method for customers on the e-commerce platform.
PayPal split from its former parent company back in 2014 -- and seven years later, it continues to make solid headway in the fintech industry. During the second quarter, PayPal's total active accounts grew by 16% year over year to 403 million while its total payment volume -- or total value of transactions conducted on PayPal's platform -- jumped by 36% year over year to $311 billion.
The digital payment industry is ripe for growth. According to one estimate, it could be valued at $236 billion in 2028 (in terms of total revenue), up from $58.3 billion in 2020. PayPal's revenue during the second quarter came in at $6.2 billion, 17% higher than the year-ago period but still just a fraction of the potential market size ahead.
The company is adapting to current trends to profit from this opportunity. For instance, its peer-to-peer payment app Venmo has graduated to something much more than that. It now accommodates retail transactions and offers a debit card and the ability to buy and sell cryptocurrency, among other perks. The crypto world has been on fire recently, and this initiative is sure to increase engagement on Venmo.
The company also recently announced the acquisition of Japanese "buy now, pay later" (BNPL) company Paidy in a cash transaction valued at $2.7 billion. The deal is set to close in the fourth quarter of 2021. BNPL allows customers to pay for goods or services on credit without a credit card. Consumers pay the money back in installments, typically free of interest. It has seen a surge in demand of late. PayPal attributes this rising demand to the uncertain economic conditions we are experiencing. With the acquisition of Paidy, PayPal is positioning itself to make some waves in this market.
PayPal sees a $110 trillion addressable market ahead for the range of services it offers. The company needs only to capture a small fraction of that for it to continue posting stellar financial results and outperform the broader market in the long run. In short, PayPal is an outstanding stock to buy and forget.
Think long term
Even the best companies have their ups and downs. Both Teladoc and PayPal have encountered headwinds in recent months -- but given both companies' prospects, this represents an excellent opportunity to purchase their shares at a discount. I believe investors who decide to pull the trigger today will be glad they did so down the road.