Cathie Wood has gone shining star to yesterday's news. Where her Ark Invest exchange-traded funds (ETFs) doubled investors' money in 2020, they have cooled off considerably since. The funds are down 59% over the last 12 months and off 18% over the past three years, but Wood is still a sharp Wall Street guru who has 10-year annual returns of almost 60%, indicating how well she did during the former bull market.
Yet no one is really having a good year this year, as even the S&P 500 is down 17% in 2022. But here are three stocks owned by Cathie Wood's ETFs that could handily outperform the broad market index over the next decade.
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Deere
Wood has bought and sold Deere (DE 0.97%) numerous times over the past few years, most recently selling 5,800 shares last month. She still owns 164,000 shares worth around $71 million at current prices, so don't read too much into the paring of her stake.
Business is booming for Deere with high demand pushing up production, based on internal sales reports. The stock is up by 24% year to date as a result. Investor Relations Director Brent Norwood told analysts on Deere's fiscal fourth-quarter earnings call, "In fact, we ended up producing more in each successive quarter throughout the year with the fourth quarter being the high point."
| Quarter in Fiscal Year 2022 |
Revenue |
% Increase Y-Y |
|---|---|---|
| Q1 | $9.56 billion | 5% |
| Q2 | $13.37 billion | 11% |
| Q3 | $14.10 billion | 22% |
| Q4 | $15.54 billion | 37% |
Data source: Company SEC filings.
Deere is benefiting from inflated commodity agricultural prices that are significantly above last year, due in good part to Russia's invasion of Ukraine, a substantial producer of Europe's wheat supply. The higher commodity costs should help boost the profitability of farmers who will spend to replace aging equipment.
Key grains are going to take several growing seasons to ease tight supplies while dealer inventories for equipment are also low. It's why Deere is looking for a repeat of its performance in 2023 with sales in the large agriculture segment up 15% to 20%, or almost $20 billion at the top end, and construction and forestry up around 10%, or almost $14 billion.
Trading at 14 times next year's earnings, there is plenty of room for Deere's stock to exceed the gains of the broader stock market.
Shopify
Shares of Shopify (SHOP 1.60%) have gone in a different direction than Deere, losing nearly 74% of their value so far this year, and are a good reason why Wood's portfolios have been hurting. The e-commerce platform provider is currently the seventh-biggest holding for Wood.
Image source: Getty Images.
Shopify has become more than a point-of-sale company and is now a vertically integrated services provider for small and medium-sized businesses, offering them payments options, small business loans, and the chance to potentially reach hundreds of millions of consumers by selling on some of the biggest online platforms like TikTok, Facebook, Twitter, and YouTube.
The e-commerce platform is also attracting the attention of enterprise-class businesses too. While the meteoric growth of the early pandemic is not likely to be repeated, Shopify's 2021 annual sales of nearly $4.7 billion represent the company's massive potential.
Shopify doesn't charge its app developers any fees on the first $1 million in revenue they generate from their apps, so they're incentivized to create for the platform. Shopify also has a critical mass of customers that will grow the more creative options are available. More customers equals more app developers wanting to be on the platform, inducing more customers to sign up.
Look for Shopify to be handily beating the market in three to five years' time. A recession may be a short-term hindrance, but bear markets are typically measured in months, and bull markets in years. I'm bullish on the long-term growth of Shopify.
Nvidia
Chipmaker Nvidia (NVDA 4.45%) has never had the same sway over Wood's portfolio as Shopify, and the investing guru has at times all but sold out of her position in the company. Today, though, she has over half a million shares.
Nvidia's recent woes have been exacerbated by events in the cryptocurrency world, especially as Ethereum flipped from a proof-of-work validation system to a proof-of-stake system where stakeholders validate transactions. Nvidia's powerful chips were the driving force behind the validation process under the previous system, but are not needed under the current arrangement.
The company stumbled again with the launch of its new 4000 series of graphics cards, having to "unlaunch" one model and cut the price on others to get traction. But Nvidia remains the undisputed leader in the market for discrete graphics processing units, with an 88% share as of the third quarter in 2022.
The gaming segment has long been Nvidia's bread and butter, but that has declined in recent periods and revenue was down to $1.57 billion in the third quarter, a 51% drop year over year. It's been replaced by its data center business, which represents almost two-thirds of total revenue, or $3.83 billion, up 31% from last year, and opens up potential for substantial growth, particularly as it is entering the complementary server processing market next year.
Along with its small but growing automotive business, healthcare framework, robotics, and AI factories, there are numerous levers for Nvidia to pull to make the semiconductor stock a winning bet once again. It foresees a $1 trillion total addressable market opportunity across its many businesses, a valuation it just might be to attain for itself within the next decade.
