The words "bargain stocks" and "Cathie Wood" don't often go together in the same sentence -- the fund manager is better known for investing in high-growth disruptive technology plays. Still, for their own reasons, I think ARK Investment Management holdings Trimble (TRMB 0.41%) and PTC (PTC 0.94%) are a good value and worth picking up for long-term investors looking to dip their toe in the market.
Long-term value
The common theme for the two -- and why they are worth putting a small amount of money into -- is that they both have excellent long-term growth prospects. If you only put $500 in each stock, it doesn't make sense to trade your holdings frequently, as trading costs will eat inordinately into your returns.
Trimble's transition
Buying stock in positioning and workflow technology company Trimble for the long term makes sense. Its growth story relates to a transition from its origins as a positioning technology company largely reliant on product sales (hardware and software) toward a company that's increasingly becoming a part of its customers' daily activity.
NASDAQ: TRMB
Key Data Points
Its crucial end markets are buildings and infrastructure, transportation, geospatial, and resources and utilities. The company has historically been known for its positioning and sensing technology (think precision pinpoints on a construction/infrastructure project, or precisely locating vehicles in a fleet of agricultural machinery). The last 20 years have seen it moving into modeling asset behavior. As such, customers can better understand its business activities.
Image source: Getty Images.
Trimble's connect and scale
However, the company's future lies in its "connect and scale" strategy. The "connect" bit means digitally connecting customers and amassing huge amounts of data from customers' daily workflow. The "scale" part refers to analyzing the data to optimize customers' daily operations.
Examples include reducing passes on a construction site, improving route optimization on trucking fleets, and efficient navigation and planting/seeding/nurturing/harvesting in agriculture.
I looked at the details behind the recent second-quarter earnings, and it's clear Trimble continues to grow its key annualized recurring revenue (ARR) metric and has a mid-teens percentage organic growth rate. That should drop down into increased free cash flow (FCF) generation over the long term, and the company has a long-term margin growth opportunity from increasing its share of revenue from higher-margin subscription and services revenue.
PTC and the digital revolution
Industrial software company PTC is also growing its annual run rate (also defined as ARR) by a mid-teens organic growth rate, and just as with Trimble, its key metric is set to drop down into significant FCF growth in the coming years.
Data by YCharts
The buzzword or phrase around PTC is its "closed-loop lifecycle" software strategy. The company's core product offerings are computer-aided design (CAD) and product lifecycle management (PLM) software. CAD is used to design a product, and PLM is used to digitally manage the product through its lifecycle.
PTC's closed loop
However, as the phrase "closed loop" suggests, it's far from a static situation. Thanks to the explosion of digital technology and advanced analytics, customers can now digitally connect physical assets (using PTC's Internet of Things, or IoT, software) to constantly generate actionable insights within the closed loop.
For example, consider that PLM monitoring can provide insight that a product's redesign would result in more efficient production. This conclusion can result in a change in design using CAD. In addition, PTC's service lifecycle management (SLM) software can produce actionable digital insights from the field (when a product is serviced and/or needs aftermarket parts, for example) that can flow back into adjusting product engineering or factory operations.
You can see the importance of the "closed loop" to PTC's strategy because the company built out its SLM offerings through the $1.46 billion acquisition of ServiceMax in January, and has now appointed ServiceMax's former CEO Neil Barua to be PTC's next CEO, starting in February.
NASDAQ: PTC
Key Data Points
Stocks to buy?
Just as with Trimble, PTC's growth story relates to how its offerings are improving and adding more value to customers due to the explosion of digital technology in the economy. Not only is this a key technological trend to invest in, but customer adoption rates will likely increase as the productivity gains of using Trimble's and PTC's technology are demonstrated.
It speaks to the probability that both companies will generate strong underlying growth for many years to come.
