Cathie Wood stuck to a distinct investment strategy over the years, focusing her exchange-traded fund portfolios on innovative companies with strong disruptor potential in supercharged industries, especially in sectors like tech and healthcare.
Given the current market environment, it should come as no surprise that many of Wood's most heavily held stocks experienced serious volatility over the past year. While the first part of 2023 has seen many such stocks rebound, regardless of whether more volatility lies ahead, the trajectory of innovation won't stop. Even if the U.S. slips into a recession in the near term, companies with firm positions at the forefront of dynamic industries can rise to the top.
Let's take a look at two Wood favorites that have significant long-term potential that investors may want to consider snatching up now at discounted prices.
1. Shopify
Shopify (SHOP -2.37%) hasn't thrilled investors recently the way it did a few years ago, but look beyond the tough macro conditions of the moment and consider where it is headed, and the investment case for the company may look much brighter.
Just in the U.S., roughly one-quarter of all live e-commerce sites are built using the company's technology. Shopify continues to innovate its platform and offerings for merchants, whether they are building a brand offline, online, or both. With its selection of software and hardware solutions, the company is making it easier than ever for anyone to get a brand off the ground, whether or not they have extensive business acumen. Shopify is also looking to meet the most pressing needs facing retail business owners today.
One of those is cross-border selling. For example, the company's recent launch of Shopify Markets Pro is designed to help merchants sell in more than 150 markets around the world with seamless ease. From discounts on shipping to tools like local currency converters and assessment of duties and taxes for each region in which the merchant operates, Shopify Markets Pro is an invaluable tool for those looking to scale their business in a highly competitive retail environment.
Another key issue for merchants is fulfillment. Shopify is looking to close the gap on weaknesses in the supply chain, which will not only make it easier for merchants to get orders to customers, but should boost both merchant and customer retention at the same time. The company's acquisition of e-commerce fulfillment company Deliverr last year significantly expanded the potential of its fulfillment capabilities. Shopify is in the process of integrating Deliverr with its fulfillment network, including the launch of a new fulfillment app for merchants.
Its revenues have continued to grow steadily in recent quarters, and Shopify's net losses have narrowed. Regardless of what happens in the next few quarters -- and it's likely that Shopify will continue to face high operating costs and even unprofitability as it continues to invest in its future -- the company remains a market leader with a sticky model that is driving growth in both merchant and subscription revenues.
Over the long term, this foundation could propel Shopify to sustained growth and profitability. While the stock isn't for every portfolio, risk-tolerant investors may find that now is an opportune time to get some exposure to this company's long-term return potential.
2. Teladoc
Teladoc (TDOC -2.91%) investors -- myself among them -- faced their fair share of ups and downs with this stock over the past year. The surge in telehealth adoption was already underway before the pandemic, but the COVID-19 crisis supercharged the trend's growth at a pace that few would have predicted.
Since the worst of the pandemic seems to have passed and the growth of the telehealth market has returned to more normal levels, it seems that investors have become unsure of what to make of the stock. The company reported steep net losses to the tune of about $10 billion just in the first six months of 2022, but those losses were tied to writedowns it took after it became clear that it overpaid when it bought Livongo a few years ago. In the third quarter, Teladoc's net loss shrank to just $74 million or so.
Meanwhile, in Q3, Teladoc generated revenue in the amount of $611 million, a jump of 17% compared to the same quarter in 2021. The company also generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $51 million. Looking back at the first nine months of the year, Teladoc's revenue and adjusted EBITDA came to $1.8 billion and $152 million, respectively.
While Teladoc's growth moderated from the heightened rates of the early pandemic era, that pace was always unsustainable for the long term. And even as year-over-year comparisons show more muted growth, the company continues to witness significant growth from pre-pandemic levels. For example, Teladoc's revenue in the first nine months of 2022 was nearly 350% higher than in the same nine-month period of 2019.
Teladoc's platform is rapidly evolving to meet the present and future needs of healthcare consumers. Case in point: Chronic care is a key area that the company has recognized as an underpenetrated market that's ripe for disruption. As of the most recent figures, 30% of Teladoc's customers have adopted its chronic care solutions, compared to just 3% before the pandemic. And more than 50% of Teladoc's customers are utilizing more than one of its virtual care offerings, which range from primary care to nutrition to dermatology to online therapy.
The future is digital, and the healthcare space is no exception to that trend. The number and variety of virtual solutions available to consumers are rapidly evolving. Investors can capitalize on the future of this business and this evolution by buying shares of Teladoc, but patience may be required in the coming quarters as the company continues to adjust to the current era's demands and growth environment.
