The 2 Top Growth Stocks to Buy in January 2024 by Cathie Wood’s Ark Invest

Ark Invest manages a variety of exchange-traded funds focused on disruptive technologies such as artificial intelligence, fintech innovation, and the next generation of the Internet. its flagship product Ark Innovation ETF It soared 67% last year, but is still more than 70% lower than its peak.

Ark Invest is somewhat unusual among Wall Street institutions. Portfolio Manager Cathie Wood and her team focus on long-term capital appreciation and recommend an investment horizon of at least seven years. This stands out because Wall Street analysts often measure time in months. The combination of technology-driven strategies and a long-term mindset makes Wood a notable asset manager.

With this in mind, Ark Invest tesla (TSLA -0.63%) and free market (Mellie 0.16%) In January. For context, the company holds 6% of its overall portfolio in Tesla and about 0.5% in MercadoLibre. Here’s what investors need to know about these top stocks.

1. Tesla

Tesla met its goal of delivering 1.8 million electric vehicles (EVs) in 2023, but it was still a difficult year for the automaker. It led the world in battery electric vehicle sales, but rising interest rates over the past two years have dampened consumer demand and pushed the company toward price cuts that have eroded its once industry-leading operating margins. Third quarter 2023 total revenue increased 9% year-over-year to $23 billion, a sharp slowdown from 56% growth in the year-ago period, while non-GAAP net income decreased 37% to $2.3 billion.

On the bright side, some of the margin pressure can be attributed to costs associated with increased production of the Cybertruck, while the remaining pressure can be attributed primarily to the difficult economy. Both should prove to be temporary headwinds. Moreover, Tesla views its vehicles as a vehicle to sell higher margin software and services, such as: apologize Use your iPhone to sell your services. In that context, the price reduction made sense.

Tesla has significant opportunities in fully self-driving (FSD) software, robotaxi services, and cloud artificial intelligence (AI) services through its Dojo supercomputer. Morgan Stanley believes that adjacent software and services could create a $10 trillion market by 2030. And Tesla could become a leader in autonomous vehicle technology because it has more self-driving data than its peers and quantitative data is key to machine learning training. Model.

Grand View Research predicts that electric vehicle sales will increase by an average of 15% per year by 2030, and the autonomous vehicle market will grow by an average of 22% per year. These tailwinds could boost Tesla’s annual sales growth by more than 20%. In fact, Morgan Stanley analysts expect sales to grow at a CAGR of 22% over the next eight years.

In that context, Tesla’s current valuation of 7.6 times its sales is considered reasonable. But there is a big caveat. Tesla is a risky stock because much of its investment thesis hinges on AI software and services that don’t exist yet. Bulls would feel comfortable buying small positions today. However, bears lacking confidence in the AI ​​narrative should avoid the automaker.

2. Mercado Libre

MercadoLibre has the largest e-commerce and digital payments ecosystem in Latin America. Specifically, it operates the largest online marketplace in the region by revenue, unique users, and page visits, and Morgan Stanley expects the company to continue gaining market share in the future.

MercadoLibre also offers complementary financial services, including payment processing through Mercado Pago (the fastest-growing underwriter in Latin America) and credit products through Mercado Crédito. We have further solidified our dominance in e-commerce by providing ad tech solutions and logistics support that add convenience to sellers.

The segment is performing well. Adtech services revenue has grown more than 70% annually over the past six quarters, and Insider Intelligence predicts MercadoLibre will be the world’s fastest-growing adtech company by 2024. Additionally, MercadoLibre’s fulfillment network handled 48% of its shipments. Order volume in the third quarter increased from 40% in the previous year, and our broader delivery network fulfilled a record 94.2% of deliveries during the quarter.

Not surprisingly, MercadoLibre continued to grow at a rapid pace in the third quarter, just as shareholders have come to expect from the company. Total revenue increased 40% to $3.7 billion, driven by strong growth across commerce and fintech segments, while generally accepted accounting principles (GAAP) net income increased 178% to $359 million. Although revenue and earnings growth will slow over the next few years, MercadoLibre is still poised to create shareholder value.

Straits Research predicts that online retail sales will grow 8% per year through 2030, while Grand View Research expects adtech spending to grow 14% per year and digital payments revenue to grow 21% per year over the same period. This is a global outlook, but given that Latin America’s economy is growing at roughly the same rate as the global economy, Latin America is likely to see similar growth.

After all, Wall Street consensus calls for MercadoLibre to grow its revenue by 24% annually over the next five years. These projections make the current valuation of 6.5x sales seem fair, especially when the three-year average is 8.8x sales. Investors with a five-year investment horizon should strongly consider opening a small position in this growth stock today.