Investors often make the mistake of buying stocks when they're near a peak. Stocks with momentum get investors excited, but buying a great stock when the tide is against it could achieve much better results.
You can't expect to time the market , so buying a winning stock, even at a high point, isn't the worst strategy. But don't miss the opportunity to buy amazing stocks on the dip. Two Motley Fool contributors weigh in with hot stocks at prices you don't want to miss.
Streaming is changing, and this company is leading the way
Jennifer Saibil (Roku): It feels strange to explain that the streaming landscape is changing, since streaming hasn't been around for that long in general, and certainly for only a few years as a real alternative to traditional content consumption. But things move quickly in general these days, and streaming isn't what it was even a few years ago.
I think many people would agree that the big streaming revolution happened with the onset of COVID, when people were stuck at home looking for entertainment. It's now a part of daily life, and all of the media giants have skin in the game.
What changed recently is the shift toward an ad-supported model similar to broadcast TV. Streaming doesn't have to be the premium experience that makes cord-cutting more difficult for viewers accustomed to free TV, and Roku (NASDAQ: ROKU) is a leader in ad-supported streaming.
Roku has two separate but connected businesses. It's the top seller of streaming devices in the U.S. and several other markets, and it has a platform business, which is mostly advertisements on its free channels, but also includes third-party relationships with other networks that stream on its system.
Roku thrived when the streaming revolution started, but it's been struggling to turn a profit in the aftermath. It's also been on the receiving end of some investor backlash this year related to Walmart 's acquisition of a competitor and general dissatisfaction with its stock performance.
But these concerns appear to be overblown. Roku continues to grow its operations and has remained the leader despite spirited competition from the likes of Amazon . I don't think a Walmart collaboration is going to blow Roku off its perch. As for performance, it's recently reporting double-digit revenue growth in both of its business segments, and the company is making progress (albeit slowly) in profitability.
The main reason to be confident about the stock is that streaming is still rising as a percentage of overall viewing hours, and the company has a niche business to grab market share. Other streaming networks are charging for ad-supported tiers, but Roku is free, and it's building up its brand with its own original content. In the long term, it should continue to stand out, scale up, and eventually become profitable.
Roku stock is down 87% from its highs and 32% this year alone. It's starting to get back up and dust itself off, and now looks like the right time to take a nibble.
Still down big, this stock looks like a smart buy
Keith Noonan (Shopify): Shopify (NYSE: SHOP) is a leading provider of e-commerce services for businesses of all sizes. The software and services specialist counts millions of businesses across the world as customers, and its offerings make it possible to quickly launch, scale up, and modify online retail operations. The company also offers payment processing and other fintech services.
After a sustained period of uneven performance related to the pandemic and macroeconomic pressures , Shopify has returned to posting solid double-digit sales growth. Despite the encouraging revenue results, the stock is still down roughly 19% year to date. Even more striking, the share price is off about 63% from its record high in November 2021.
The last quarterly report showed that total sales across its e-commerce platforms rose 23% year over year. Meanwhile, total revenue generated by the company increased by the same amount and hit $1.9 billion. If sales from the company's since-divested logistics business were backed out, revenue would have actually been up 29% compared to the prior-year period.
In addition to strong momentum for its core growth engines, Shopify is actually seeing some encouraging momentum in margins. Gross margin in the first quarter improved to 51.4%, up from 47.5% in the prior-year period.
But investors were more concerned with the company's second-quarter guidance: a high-teens percentage growth rate. Meanwhile, adjusted revenue was projected to grow at a low-to-mid-20s percentage rate. Management also indicated that the company's gross margin would likely decline to 50.9%.
However, while growth could once again go through some uneven periods, the overall trajectory remains encouraging. Not only are merchant transactions increasing organically on its platform, the e-commerce specialist is also showing strong pricing power with improved take-rate conversion.
Subscription solutions look poised to see continued expansion over the long haul and rose 34% year over year to hit $511 million in the first quarter. Once again, the company benefited from new merchants joining its platform and pricing increases for its subscription plans.
In particular, the company is scoring wins for its Shopify Plus service for large enterprises, and there looks to be a long runway for continued expansion. With subscription services beginning to account for a larger portion of overall sales, Shopify should see gross-margin catalysts over the long term. Along with continued sales growth, I think this sets the stage for long-term investors to see very strong returns.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Roku, Shopify, and Walmart. The Motley Fool has a disclosure policy .
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