It’s a target-rich environment for bringing fresh names to the portfolio. There are a lot of prospects out there, suggests Hilary Kramer, growth stock specialist and editor of GameChangers.
One of the oldest paradoxes of life on Wall Street revolves around the way that the very same investors who run for the exit at the slightest whiff of potential trouble step back up as buyers the minute things in the economy start actually breaking down. Cowardice converts to confidence with remarkable speed.
Was it only a few weeks ago that the biggest bank failures since the 2008 crash threw up a fresh wall of worry for our stocks to climb? The world did not actually come to an immediate end. We climbed that wall, bouncing back 8% since Silicon Valley Bank imploded.
This is how it feels when a bear market ends. Initially there are still plenty of shocks and false starts, but in between them, strong stocks find more and more room to rally until it becomes perfectly clear to everyone that you just can’t keep them down any more.
We’ve just weathered another of those aftershocks. The Fed’s aggressive rate hikes did in fact break a few banks. Now the prospect of a recession on the horizon looks a lot more serious, but after a year of dread, investors are apparently eager to look past a brewing slowdown toward a fresh economic cycle. And in a fresh economic cycle, stocks like ours will once again get plenty of runway.
One of my favorites that has been out of bounds for a long time now is finally in play. Roku (ROKU) is the kingmaker in the world of streaming video, with devices that push subscription channels from the computer to the wall TV. Their real business is running ads on channel menus and that business has come a long way forward in the COVID era.
Revenue came in at $1.1 billion back in 2019. ROKU hit $3.1 billion last year and while the ad market looks a little soft right now, I suspect we’ll end up with another 6% growth on the top line this year. That’s enough to finally keep this company operating on a sustainably profitable basis, especially now that management understands that costs need to be controlled.
And for investors, hitting these milestones means the company is much more attractive than it was in 2019. Back then, before the pandemic dislocations and the zero-rate flood of cash into the market, ROKU was a $170 stock.
We’re getting roughly 3X the cash flow at practically 1/3 the price. As I mentioned, this one was dead money for the last two years. Now, however, earnings cleared the air and people are falling in love with it all over again.
Buy ROKU below $63. My initial $76 target is extremely modest, reflecting the recent post-earnings surge. In time, this could easily be worth much, much more.