While some of Cathie Wood's favorite stocks have taken a hit in recent quarters, her long-held focus on putting cash into companies at the forefront of innovation and technology is a theme that remains compelling in a broad range of market environments.
If you have the investment capital on hand and the risk tolerance to put cash into beaten-down growth stocks, there are still wonderful companies with fantastic runway potential in this category. Here are three such stocks to consider holding for at least three to five years.
1. Teladoc
Teladoc Health (TDOC 0.33%) has seen its shares pop by roughly 35% since the beginning of 2023, although the stock is still trading down some 57% from its position 12 months ago. The company has faced a rocky road since the peak of its pandemic success, but part of this has been due to the environment that followed its surge of growth.
Back in the earlier days of the pandemic when capital was flowing freely and innovation-centric sectors saw record surges in growth, it wasn't uncommon for companies to pay a premium for acquisition targets. Teladoc was a prime example of this trend, when it bought Livongo in 2020 for a whopping $19 billion.
By 2022, it became clear that Teladoc was one of many companies that overpaid for an acquisition target in the pandemic era. So it recorded massive impairment charges in the first half of 2022 -- $10 billion, to be exact. These acquisition writedowns bloated Teladoc's net losses, and investors, who had already been souring on some of the pandemic-era favorites, began to head for the hills.
As a Teladoc investor, I can attest to the fact that it wasn't an easy time. And there may be more bumps in the road ahead. Still, I think this company's future remains promising and that it has a solid growth runway ahead.
Yet, Teladoc remains the dominant figure in telehealth, one of the largest and fastest-growing markets adopting virtual care solutions. Teladoc is building out a platform designed to meet the full scope of non-emergency healthcare needs, from teletherapy to primary care to chronic care solutions, and patients are responding. Its teletherapy business BetterHelp alone brought in about $1 billion in revenue in 2022.
Meanwhile, Teladoc's net losses are narrowing following the tough first half of 2022, and revenue is growing steadily, both on a year-over-year clip and compared to pre-pandemic levels. In fact, Teladoc's third-quarter revenue of $611 million represented a more than 340% increase from Q3 2019.
The telehealth market is exploding -- reaching a valuation of $60 billion in 2022 -- and is set to expand at a compound annual rate of around 35% between now and 2033. Investors who stay with the healthcare stock through the volatility may find that the light at the end of the tunnel was worth the wait.
2. Zoom
Zoom Video Communications (ZM -0.16%) has surged 17% since the start of the new year, but its shares are still down by about 40% over the trailing 12-month period. As a pandemic favorite that saw adoption of its solutions skyrocket during the lockdown era, Zoom is now understandably seeing a slowdown -- or normalization -- of its growth.
There's no doubt that tech companies are facing particular headwinds in the current macro environment, particularly as enterprise-driven spending remains in flux and growth slows from pandemic levels. This has made the enlarged workforces that many businesses took on during that supercharged time of growth unsustainable.
The same is true with Zoom, which joined a long line of tech companies enacting workforce reductions as a means of streamlining costs and in hopes of protecting the bottom line. Zoom recently announced that it was slashing about 15% of its workforce.
Despite these developments, there's still a lot of runway left for Zoom to grow. The company controls a roughly 55% share of the video conferencing software market alone, a market on track to hit a valuation of $15 billion by 2029. Even as the last few years have seen record adoption of these software solutions, the video conferencing software market still has a penetration rate of about 65%, allowing ample room for expansion as the market continues to grow.
In its third-quarter earnings report, Zoom's revenue of $1.1 billion was up 5% year over year, and up about 560% on a three-year clip. The company also recorded profits of $48 million in the three-month period. Notably, its group of customers contributing $100,000 or more in trailing 12-month revenue was up by a whopping 31% year over year, but that cohort of users was up more than 500% on a three-year clip.
Investors could still face a bumpy road ahead with the stock, as with other growth-oriented businesses in the current market. Still, the company's market share, and the ongoing opportunity for it to expand its footprint as adoption of these solutions expands, could make it worth considering for a well-diversified portfolio.
3. Shopify
Shopify (SHOP -0.45%) has rebounded 26% since the beginning of the year, but is still trading down about 32% from where the stock was one year ago.
The growth stock remains a virtually unmatched force in the world of e-commerce platforms, with its software solutions fueling about 25% of all live e-commerce websites in the U.S. alone. And 19% of the world's e-commerce websites are built on Shopify, giving it the second-largest market share globally (after privately-held WooCommerce).
2022 saw the company report revenue of $5.6 billion, up 21% from 2021, driven by merchant solutions and subscriptions solutions sales growth of 28% and 11%, respectively. Last year saw the company launch Shopify Markets Pro in the U.S., designed to enable smooth and seamless selling across borders. It also launched Shopify Payments and its hardware solution Shopify POS in several new European markets.
Importantly, the company also closed the acquisition of e-commerce fulfillment company Deliverr and has been actively integrating the business with its existing Shopify Fulfillment Network. President Harley Finkelstein says the integration is going swimmingly, noting in the recent earnings call that "Deliverr has achieved over 50% growth in units fulfilled and more than doubled its services outside of fulfillment, services like freight, B2B, parcels and returns."
Management has been clear that the company intends to return to profitability, and this pattern of aggressively investing in Shopify's business infrastructure is part of that strategy. As CEO Tobi Lütke said in the 2022 earnings call, "Profitability is a consequence of growth and efficiency combined over time .... And I believe that over time, profitability will take care of itself if this is the kind of type of company you're building.
Shopify is continuing to focus on improving its business, hardware, and software solutions for merchants. It's spending heavily on building out its business right now (hence the ongoing net losses), in order to set itself up for competitive and durable growth in the future. While that may be painful for investors to contend with in the near term, in the long term I think this strategy will not only pay off but enrich investors in the process.
