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3 Cathie Wood Stocks for Buy-and-Hold Investors

profileSudhan P

Catherine Wood, more commonly known as Cathie Wood, is the founder of ARK Investment Management.

The company manages the world-famous ARK ETFs, which are active exchange-traded funds (ETFs).

What makes ARK ETFs interesting is that they invest in companies focused on disruptive innovation.

ARK believes that innovations centred around artificial intelligence (AI), robotics, energy storage, DNA sequencing, and blockchain technology will “change the way the world works and deliver outsized growth as industries transform”.

Such companies have powerful tailwinds going for them that by investing in an area where the particular technology is headed for sure, investors would end up doing well over the long run.

For individuals who like to pick stocks instead of buying a fund, the companies held under ARK ETFs could prove to be a great starting point for research.

With that, here are three stocks held under ARK ETFs that I believe can continue doing well for decades to come.

Company #1: Mercado Libre 

Mercado Libre (NASDAQ: MELI) is the largest online commerce ecosystem in Latin America and is currently present in 18 countries such as Brazil, Argentina, Mexico, Chile, and Colombia.

Mercado Libre offers users an ecosystem of six integrated e-commerce and digital payments services, namely:

  • the Mercado Libre marketplace where users can buy and sell items,
  • the Mercado Pago digital payments solution,
  • the Mercado Envios logistics service,
  • the Mercado Libre ads solution,
  • the Mercado Libre classifieds service, and
  • the Mercado Shops online storefronts solution.

Over the past five years, from 2016 to 2020, Mercado Libre’s gross merchandise volume grew by 30% on an annualised basis, while its total payment volume surged 59% on an annualised basis.

The two metrics above speak volumes about Mercado Libre’s platform growth.

During the same time frame, Mercado Libre’s net revenue stepped up 47% yearly, from US$844.4 million to US$3.97 billion.

The company is still loss-making, though, as it’s investing money to continue capturing a large share of the Latin American market.

Latin America has a population of over 646 million people and is one of the fastest-growing e-commerce and internet penetration rates globally.

With a focus on enabling wider access to retail, digital payments and e-commerce services to people in Latin America, Mercado Libre is likely to continue doing well for the next decade and beyond.

Mercado Libre makes up around 4% of the ARK Fintech Innovation ETF (ticker: ARKF).

Company #2: Square

Square Inc (NYSE: SQ) started off by providing dongles and apps to turn smartphones and tablets into POS (point-of-sale) systems.

But it has since expanded its ecosystem to provide over 30 products and services for businesses (or “sellers”) to help them manage and grow their business operations.

Square also owns Cash App, an ecosystem of financial products and services to help individuals store, send, receive, spend, and invest their money.

Source: Square investor presentation

Cryptocurrency fans would be excited to know that the Cash App allows users to buy, hold and sell bitcoin (though the app is not available in Singapore) and that Square owns the OG of crypto on its balance sheet.

The value proposition of Square as an investment is that as sellers and individuals use more of its services, their activity with Square increases, reinforcing the company’s recurring revenue model.

With a penetration rate of below 3% each for its two ecosystems, Square has huge markets to grow into.

Source: Square investor presentation

Recently, Square announced its plans to acquire Afterpay Limited (ASX: APT), a “buy now, pay later” (BNPL) platform.

Square plans to integrate Afterpay into its existing seller and Cash App business segments and enable even the smallest merchants to offer BNPL at checkout.

The merger also allows Afterpay consumers to manage their instalment payments directly in Cash App, while Cash App customers can discover merchants and BNPL offerings all within the app.

We have to bear in mind that Square’s market opportunity figures seen earlier don’t include the growth that the Afterpay acquisition can bring, which is expected to close in the first quarter of 2022.

Square is found in the ARK Innovation ETF (ARKK), ARK Next Generation Internet ETF (ARKW), and ARK Fintech Innovation ETF (ARKF).

Company #3: UiPath 

UiPath Inc (NYSE: PATH) provides a range of robotic process automation (RPA) solutions through a suite of interrelated software offerings.

Robotic process automation sounds like a mouthful, but it means that software robots are used to automate mundane tasks performed manually, freeing up people’s time to do more value-adding work.

Some of UiPath customers include Adobe, CrowdStrike, and Uber Technologies.

Overall, UiPath has captured 80% of the Fortune 10 and 63% of the Fortune Global 500 companies as its customers.

UiPath’s competitive advantage comes from its high switching cost and network effect, as discussed in my earlier analysis of UiPath.

UiPath’s high gross profit margin, which has been rising consistently in the past, shows that the company indeed has some form of economic moat.

 FY2019FY2020FY2021
Revenue (US$ '000)148,465336,156607,643
Gross profit (US$ '000)106,137276,751541,786
Gross profit margin71.5%82.3%89.2%

For its latest quarter that ended on 31 July 2021, UiPath’s annualised renewal run-rate (ARR) increased by 60% year-on-year while its revenue grew 40% compared to the previous year.

The ARR metric shows UiPath’s ability to acquire new subscription customers and maintain and expand its relationship with existing customers.

UiPath ended the quarter with a strong dollar-based net retention rate (DBNRR) figure of 144%.

DBNRR reveals whether a company is growing its existing customer relationships.

Anything above 100% is great as that means the company’s customers, as a group, are spending more.

To sum up UiPath’s latest results, here’s what chief financial officer Ashim Gupta said in the earnings release:

“Our land and expand go-to-market model delivered record net new ARR, a testament to our competitive differentiation and the power of our platform to drive meaningful return on investment for our customers. Looking ahead, our priority is to continue to drive growth while exercising operational rigour, which will allow us to maintain our clear leadership position in this large and growing market.”

UiPath indeed has a large market for growth.

The company estimates its current global market opportunity to be over U$60 billion. With its trailing twelve months revenue of only US$0.74 billion, UiPath barely scratches the surface of the entire automation market.

UiPath makes up around 5% of the ARK Autonomous Technology & Robotics ETF (ARKQ).

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer doesn’t own shares in any companies mentioned. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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