Below is the list of the 5 best stocks to buy for the next ten years based on Cathie Wood’s Q2 portfolio. For a comprehensive list and detailed discussion please see 10 Best Stocks to Buy for the Next Ten Years.
5. Shopify Inc. (NYSE: SHOP)
Number of Hedge Fund Holders: 85
The e-commerce platform Shopify Inc. (NYSE: SHOP) is a member of Cathie Wood’s stock portfolio since 2017. What’s more, her firm lifted its stake in Shopify by 13% to 1.21 million shares in the second quarter. Shopify’s stock price rebounded sharply in the last two months after experiencing volatility early this year.
The Canadian multinational commerce platform generated $1.11 billion in revenues in the second quarter, up 55.4% from the past year period, and topped the consensus estimate by $60 million. Furthermore, with the strategy of reinvesting profits back into the business, the company expects to extend the revenue growth momentum in the quarters ahead.
In the Q2 2021 investor letter of RiverPark Funds, the fund mentioned Shopify and discussed its stance on the firm. Here is what RiverPark Funds stated:
“SHOP shares were our next top contributor. Shopify’s fundamentals remain stellar, with first quarter results that included $37 billion of merchandise sales, a 114% year-over-year increase, leading to 110% revenue growth for the company. Subscription solutions revenue grew 71% year over year, and SHOP also showed tremendous operating leverage, with adjusted operating expenses decreasing from 58% of revenue for 1Q20 to 36% for 1Q21.
Last year, $120 billion (9%) of US retail e-commerce sales flowed through SHOP, which was second only to Amazon and up from $61 billion for 2019. The company is still enjoying significant tailwinds as retail merchants of all sizes rapidly adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services at SHOP, will continue to drive revenue growth of greater than 50% per year over the next several years, accompanied by operating margin expansion to more than 20%, up from 15% last year.”
4. Square, Inc. (NYSE: SQ)
Number of Hedge Fund Holders: 94
Jack Dorsey’s payment company Square (NYSE: SQ) is one of the long-running stock holdings of Ark Investment Management. The firm, however, slashed its stake in Square by 26% during the second quarter to 3.65% of the overall portfolio. Square’s share price jumped 26% year to date, thanks to robust revenue growth trends and its move towards crypto markets.
Square investors should be aware of an increase in hedge fund sentiment recently. Square was in 94 hedge funds’ portfolios at the end of the second quarter of 2021 compared to 92 positions in the first quarter. Our calculations also showed that SQ ranked #24 among the 30 most popular stocks among hedge funds.
3. Roku, Inc. (NASDAQ: ROKU)
Number of Hedge Fund Holders: 61
The TV streaming platform Roku, Inc. (NASDAQ: ROKU) is a member of Wood’s stock portfolio since the second quarter of 2019. The firm held 4.7 million shares of Roku at the end of the second quarter. It is the third-largest stock holding Wood’s 13F portfolio.
LRT Capital Management, an investment management firm, discussed a few companies including Roku in its second-quarter 2021 investor letter. Here is a part of what LRT Capital Management stated:
“Roku is the leading TV streaming platform in the U.S and globally. The company’s mission is to be the leading company that connects the entire TV ecosystem of viewers, content publishers, and advertisers. Roku’s business model has two parts: selling streaming devices (Player Segment), and selling streaming content such as subscriptions, ads, and video-on demand services (Platform Segment). The Player segment operates with low margins and acts as a gateway to get users hooked on streaming content. The content in turn generates very high margins for Roku, which makes the company’s business model analogous to the razor-razorblades models of success of companies in the past. The Roku platform allows users to personalize their content selection with cable television replacement offerings and other streaming services that suit their budget and needs. The company is focused on improving its scale, engagement, and monetization. First, scale is based upon the number of active accounts. Second, improving engagement grows the number of hours watched for the company. Lastly, monetizing user activity by content subscriptions or advertising drives revenue growth.
Historically, investors viewed Roku as a provider of commoditized hardware. However, we see the business as a provider of a platform for streaming services with ongoing recurring revenues as the company reduces its reliance on hardware sales for profits. In fact, over the past 5 years, the share of revenue coming from hardware sales has shrunk to just 45%, while its contribution to gross profit declined to 19%.1 We believe that the company’s strong competitive advantage is rooted in its high switching cost and scale-based cost advantages. In addition, we believe Roku is only in the beginning stages of its growth both domestically in the United States and internationally where the cord-cutting phenomenon is at least five years behind the U.S. Lastly, Roku’s capital allocation strategy has been exemplary and focused primarily on acquisitions that improve the customer experience and value of its platform. The moat, growth opportunities, and the company’s track record of capital allocation makes us believe that Roku can deliver strong investment returns to shareholders in the upcoming years…” (Click here to see the full text)
2. Teladoc Health, Inc. (NYSE: TDOC)
Number of Hedge Fund Holders: 43
The virtual healthcare services provider Teladoc Health, Inc. (NYSE: TDOC) continues gaining Cathie Wood’s confidence this year. The company’s share price plunged sharply early this year amid easing social distancing policies. However, Wood saw that as a buying opportunity. Her firm increased its position in Teladoc by 11% in the second quarter to 4.95% of the entire portfolio.
Prominent investors were getting more optimistic about Teladoc Health. The number of long hedge fund bets has increased by 1 lately. It was in 43 hedge funds’ portfolios at the end of June.
1. Tesla, Inc. (NASDAQ: TSLA)
Number of Hedge Fund Holders: 60
Elon Musk’s electric car company Tesla, Inc. (NASDAQ: TSLA) is the largest stock holding of Ark Investment Management, according to the second-quarter filings. The firm held $3.69 billion worth of stake in Tesla, representing 6.87% of the overall portfolio. Its shares remained under pressure this year due to investors’ rotation to value names.
In the Q2 2021 investor letter of Worm Capital, the fund mentioned Tesla and discussed its stance on the firm. Here is what Worm Capital stated:
“Tesla underperformed in the quarter, but we maintain our high conviction in the long-term thesis on each business model. Much like art or writing, investment research is a continuous process—it never really ends. Prices can move in either direction in any given quarter, but our advantage often comes from knowing the businesses so well that short-term fluctuations in pricing shouldn’t affect our decision-making. In high conviction positions, this patience is often rewarded, which is why research is so valuable to our process…
Tesla is in a class of its own. What many in the market seem to (still) not understand is that Tesla is not a car company so much as a complex manufacturing firm—with significant recurring software potential—growing, in our view, at a targeted rate of 50-100% YoY over the next several years. Unlike any other automotive firm in existence today, Tesla alone is a vertically integrated hardware and software business developing state-of-the-art manufacturing techniques that will revolutionize the auto industry (i.e. its Giga Presses, 4680 cells, etc.). It is a generational company and we anticipate it will eventually be the largest company in the world. Many of the conventional narratives around competition displacing Tesla’s lead are fundamentally flawed, and the many headlines surrounding Tesla’s approach to autonomy are frustratingly superficial. (As an aside, we highly recommend watching Andrej Karpathy’s, Tesla’s head of AI, his recent presentation from June: “Tesla details its self-driving Supercomputer that will bring in the Dojo era)”.
You can also take a look at 15 Biggest Real Estate Companies In The World and 10 Best Real Estate Stocks To Buy Now
