2 Cathie Wood stocks that are the best buys for long-term investors

Cathie Wood has gained prominence as an investor focusing on disruptive technologies. Her flagship fund, the ARK Innovation ETF (ARKK -2.53%)it is known for its volatility and relatively high expense ratio of 0.75%. Despite Wood’s reputation as a skilled stock picker, the fund has underperformed S&P 500 over the past five years (see chart below). However, the ARK Innovation ETF can be a valuable source of growth stock ideas for investors with a long-term perspective.

ARKK Total Return Level data by YCharts.

Among the growth stocks in Wood’s portfolio, two stand out as potentially attractive investments: Roblox (RBLX -0.07%) and Palantir Technologies (PLTR -1.56%). Although these emerging innovation companies have inherent risks, they can offer significant growth potential for investors looking to hold positions for 10 to 20 years. Here’s a look at why these two stocks might be worth adding to a long-term, well-diversified portfolio.

Image source: Getty Images.

Roblox: Creating a digital realm for sustainable growth

At the intersection of gaming and social interaction, Roblox has cultivated an innovative ecosystem where creativity flourishes and economic opportunities abound. The platform’s revolutionary approach to user-generated content has catalyzed exponential growth, with its community growing from 19.1 million daily active users at the end of 2019 to 65 million by mid-2023, fostering a cycle of engagement and development which is self-reinforcing.

While profitability remains elusive, Roblox’s financial trajectory is promising. Its gross margins have grown at unprecedented rates in recent years as the company explores new revenue channels such as immersive advertising experiences. By strategically targeting older demographics with higher disposable incomes, Roblox aims to unlock new monetization avenues and pave the way for future financial success.

RBLX Gross Profit (Annual) data by YCharts.

The company’s strategic focus on developing its young user base positions it advantageously in the attention economy, with the potential for significant returns as these digital natives mature. This demographic evolution could serve as a powerful catalyst for Roblox’s financial performance over the next 10 to 20 years, potentially turning today’s engaged players into tomorrow’s profitable customers.

Despite lagging the broader markets since its public debut, Roblox continues to draw optimism from financial analysts, who project robust growth topping 19% over the next two years. The company’s distinct market position, coupled with its demonstrated ability to evolve with user preferences, presents an attractive proposition for investors with the patience to accept short-term market fluctuations in pursuit of long-term value creation.

Palantir: Building data-driven decision making for decades to come

Palantir Technologies is at the forefront of a long-term revolution in artificial intelligence (AI) and machine learning infrastructure. The company develops sophisticated platforms designed to transform the way organizations harness data for long-term strategic decision-making. Palantir’s flagship products, Gotham and Foundry, address complex data challenges that are likely to become more prevalent as the volume of information grows exponentially in the coming years.

The company’s strategic evolution towards modular solutions and usage-based pricing reflects an advanced approach to market dynamics. This shift positions Palantir to capture a broader spectrum of customers over time, potentially leading to sustained growth as organizations gradually increase their reliance on AI-powered analytics. The long-term value proposition lies in Palantir’s ability to grow alongside its customers, deepening relationships and expanding footprints within organizations over years or even decades.

Palantir’s dual focus on the government and commercial sectors provides a foundation for long-term stability and growth. Government contracts provide a stable revenue base, while the commercial sector presents significant opportunities for expansion. The company’s impressive growth in the US commercial segment suggests a broader, long-term trend of companies increasingly adopting AI solutions to remain competitive in a data-driven world.

As artificial intelligence becomes more deeply integrated into business and government operations, Palantir’s focus on security and its track record with sensitive data positions it favorably for lasting success.

The company’s growing customer base and the increasing sophistication of its platforms suggest that Palantir is building a sustainable competitive advantage. All things considered, Palantir’s strategic positioning in the fast-growing AI space presents an intriguing opportunity for investors with a multi-year or even multi-decade investment horizon.