Over the past few years, plenty of investors started paying more attention to stock picks made by Cathie Wood, the co-founder and CEO of Ark Invest. While her strategy of focusing on high-growth companies put a strain on returns in 2022, there are still great long-term investment opportunities to be found in some of her picks.
Three companies Ark Invest has shown interest in have the potential to end up being great investments, especially if you buy them now and hold them for 10 years (or longer!). They are Tesla (TSLA 0.66%), Roku (ROKU -1.39%), and Block (SQ -1.18%). Let's look at why these three Cathie Wood stocks are great buy-and-hold options.
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1. Tesla
Tesla CEO Elon Musk is making headlines right now for a lot of reasons completely unrelated to his electric vehicle (EV) company. But Musk's takeover of Twitter aside, his EV company continues to grow at a healthy pace and is leading the transition to electric-powered vehicles.
Tesla's vehicle production spiked 54% year over year to 365,923 vehicles in the third quarter (ended Sept. 30), and deliveries rose by 42% to 343,830. That impressive growth came amid ongoing supply chain issues and rising costs that have weighed down smaller EV start-ups.
The company isn't immune to hardships, of course. A potential EV slowdown is occurring in China, and a looming recession could throw cold water on the stock in the near term. But by almost all accounts, Tesla is moving in the right direction. Total sales rose 56% in the quarter to $21.4 billion, and the company's net income doubled to $3.3 billion. With new factories up and running and vehicle production increasing, 2023 could be a banner year for Tesla as it aims to deliver 2 million vehicles annually.
Now could be a good time to start an EV stock position as the shift away from combustion engines gets further underway. Tesla shares trade at about 42 times earnings right now, which isn't exactly cheap. But with the company's current position in the EV space and its recent proof that it can increase deliveries and production during difficult times, there's likely more room for Tesla to run.
2. Roku
The digital advertising market is in a bit of a pickle right now as companies cut back on spending due to fears of a potential recession. That's put a damper on Roku's ad business (its primary source of revenue) lately. But it's not all bad news for the video streaming platform company. Active accounts on Roku's platform soared 16% in the third quarter to 65.4 million, and users are spending a lot of time on the platform. Streaming hours hit 21.9 billion in the quarter, up 21% year over year.
And if history is any guide, digital ad spending could quickly bounce back following any economic slowdown. In 2009, following the Great Recession, digital ad sales soared in the quarters following the economic slowdown. Additionally, eMarketer research shows that U.S. digital ad spending will reach $315 billion in 2025 -- up from $240 billion this year.
Finally, Roku's stock is trading for a fraction of what it was last year. The company's current price-to-sales (P/S) ratio of 1.9 looks relatively inexpensive, compared to its P/S ratio of nearly 13 this time last year.
3. Block
Block may be the most controversial company on this list because it has exposure to the hyper-volatile cryptocurrency market through its Cash App. Cash App is Block's largest revenue maker, and it's a great app to send money to peers and even pay businesses for goods. It's also been a way for people to buy and sell Bitcoin over the past few years.
That was great when Bitcoin's price was surging, but not so much when the value of the cryptocurrency plunged 65% over the past year.
The good news is that if you remove Bitcoin sales from Block's revenue, things still look really good. Minus Bitcoin revenue, Block's sales increased by 36% year over year in the third quarter to $2.75 billion.
The company's other business segments are seeing solid growth as well. Block's new Cash App Card (a debit card) now has 18 million active users, up 40% from the year-ago quarter.
Additionally, gross payment volume (GPV) -- the dollar amount spent across all of Block's payment services -- increased by 20% year over year in the third quarter to $54.4 billion.
Finally, Block's price-to-sales ratio is currently below 2, down from a multiple of about 5 times sales this time last year. There's still likely to be some volatility from this stock in the near term, but its current growth, relatively cheaper price, and opportunity in the payment space could make it a good long-term bet.
Think 10 years, not 10 weeks
It's easy to buy a stock and tell yourself that you're going to hold onto it for years. It's much easier to follow through when a couple of bad quarters come along.
If you're nervous about holding these stocks for longer than a few quarters, consider opening just a small position with each one. Many brokers offer the option to buy fractional shares these days, making it that much easier to buy smaller amounts of stocks.
Just remember that one of the best ways to benefit from the market is to hold onto your investments for years, not months, and give your investments time to grow.
