Many people played “follow the leader” when they were in grade school. And many apply the basic premise of that game to various activities, including investing. When there is the potential to make or lose a lot of money, it pays to at least consider the opinions of those considered subject matter experts. That can mean paying attention to what most successful investors are doing.
Cathie Wood, CEO of Ark Invest, belongs to this group of highly regarded investors whose opinions carry considerable weight. Peeking inside her investment management firm’s portfolios can yield excellent insights. In fact, let’s consider two Cathie Wood stocks that look like strong picks for the next decade: Roku (NASDAQ: ROKU) and Adyen (OTC: ADYE.Y).
1. Roku
To say that Roku isn’t keeping pace with the current market would be an understatement. The company’s shares are down by 36% this year. Roku is dealing with several headwinds. Revenue growth isn’t as impressive as it once was, average revenue per user is stagnating, and the streaming specialist still isn’t consistently profitable.
That said, Roku has plenty of things going its way, too. It remains the leader in the connected TV (CTV) market, with a 48% slice of the pie as of the first quarter. No other company even comes close (the next best was at 11%), and that’s saying something considering Roku’s competitors. They include Amazon and Samsung.
Roku’s deepening ecosystem is likely helping it maintain its lead in the industry. It ended the first quarter with 81.6 million connected households, an increase of 14% year over year. Roku benefits from the network effect. The more households there are in its ecosystem, the more attractive it becomes to streaming companies and advertisers.
And even though the company’s revenue growth isn’t as strong as it once was, there is still massive potential ahead for Roku. Cable TV is slowly fading away. Streaming is on the rise. The transition won’t be complete for many, many years. That’s why streaming platforms have been growing like weeds over the past few years. It’s hard to keep track of how many there are now, although it’s pretty clear that Netflix remains one of the undisputed leaders.
No matter who wins out in the end, though, Roku will benefit because it is not directly in competition with Netflix. Its platform merely allows consumers to access the most prominent streaming channels in one convenient spot. And as advertising dollars follow viewers into streaming channels, Roku will benefit.
Its growing ecosystem should also work wonders for its margins (the sale of its namesake streaming devices isn’t particularly profitable). So, expect revenue to keep trending up, margins to improve, and, eventually, Roku to become consistently profitable. In my view, it’s a good time to invest in the streaming giant while its shares are down.
2. Adyen
Adyen is a fintech specialist headquartered in the Netherlands. Its platform combines several services typically offered by two or more separate institutions. Adyen is an acquirer that also provides payment gateways (the online version of point-of-sales systems), payment processing, and risk management services, all in a single integrated platform. Adyen’s services are particularly useful for multinational corporations that otherwise have to rely on different providers for these services in different regions.
Though Adyen’s financial results are pretty strong, they have fallen short of investors’ expectations over the past few quarters. That’s especially a problem because the company decided to squeeze its margins and bottom line by spending money on expansion plans and onboarding more employees, even as many other corporations did the exact opposite amid economic troubles. That’s why Adyen hasn’t performed well on the stock market recently. That said, it should be able to bounce back and deliver solid returns over the long run.
Consider that in the first quarter, the company’s revenue of 438 million euros ($470 million) increased by 21% year over year. Its processed volume of 297.8 billion euros ($319.6 billion) was up by 46% compared to the year-ago period. Even if Adyen’s growth pace has fallen somewhat, it hasn’t exactly landed in a bad place. Few fintech companies worldwide can match or exceed the company’s payment volume.
Furthermore, Adyen benefits from a strong moat. Corporations rely on its services to process and accept payment in day-to-day activities. That’s not something they will want to disrupt, which gives Adyen high switching costs.
Finally, the fintech giant still has plenty of room to run, particularly in North America, where its revenue has been growing faster than in any other region. Adyen should remain a leader in the fintech industry for a long time, and long-term, growth-oriented investors will likely find what they are looking for in this company.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon and Roku. The Motley Fool has positions in and recommends Adyen, Amazon, Netflix, and Roku. The Motley Fool has a disclosure policy.
2 Cathie Wood Stocks You Can Buy and Hold for 10 Years was originally published by The Motley Fool
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