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3 Stocks I'm Ready to Buy if They Keep Falling

Key Points

  • Investors are missing Walt Disney's strategy to turn out higher profits at theme parks.
  • fuboTV is a fast-growing streaming service worth keeping on your watch list.
  • Roku is seeing advertisers move over to digital platforms, and it's reaping the benefits.

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The market is missing the big picture with these companies.

The stock market has continued to hit new highs in recent weeks, but there are many top stocks that are experiencing above-average volatility, which could present good buying opportunities for bargain-hunting growth investors.

Three Motley Fool contributors have already done the hard work for you to select three beaten-down stocks that are worth keeping on your watch list. Here's why they are bullish on Walt Disney (DIS 3.49%), fuboTV (FUBO 7.80%), and Roku (ROKU 9.03%).

A father and son enjoying entertainment on a tablet.

Image source: Getty Images.

This top entertainment brand will grow more valuable over time

John Ballard (Walt Disney): Shares of Walt Disney plunged last week after growth in streaming (Disney+, Hulu, ESPN+) and theme parks failed to meet analysts' expectations, despite management's previous warning that fiscal fourth-quarter earnings results might be choppy. But by taking Disney's results as reported, the market is overlooking the long-term growth trajectory taking shape.

Disney+ ended the quarter with 118 million subscribers, or 60% higher than the year-ago quarter. Investors were hoping for a higher number, but management reiterated that the company is on schedule to reach its previous target of between 230 million to 260 million subscribers by fiscal 2024 (which ends in September). Disney has a loaded release schedule for the second half of fiscal 2022 that CEO Bob Chapek said represents "the beginning of the surge of new content" that was unveiled at Disney's investor conference last year. 

Meanwhile, theme parks are experiencing strong demand. Disneyland just launched the new Magic Key membership program in August, and the two-tier Dream Key pass has already sold out. This program is part of Disney's plan to improve the guest experience and streamline the traffic flow, but it's also good business, as the extra membership revenue should lead to better profit margins at the parks. It's a win-win for customers and shareholders.

All said, Mickey Mouse is not worth less because Disney missed earnings estimates in one quarter. Total revenue was up 26% year over year in the most recent quarter, while the return of traffic at the parks helped operating profit more than double. The rollout of the membership program at the parks and the continued growth of Disney+ should lead to growing profits over the next five years, so if the stock continues to fall from its current price of about $158, which is not much higher than its pre-pandemic peak, I will be adding shares to my Disney holding.

This supercharged growth stock is riding a powerful tailwind 

Parkev Tatevosian (fuboTV): Sports-centric cable TV streaming substitute fuboTV crashed by more than 26% after reporting third-quarter earnings on Nov. 9. The company is riding the back of a tailwind that can last several years. Consumers are changing their preferences for how they wish to view content. Increasingly, that choice is moving in favor of streaming; a streaming subscription can be watched anywhere you have internet access, is easier to sign up for and cancel, and frequently costs less than cable.

fuboTV is capitalizing on this trend. In its most recent quarter ended Sept. 30, the company increased revenue by 156% from the same quarter in the year before. This growth was fueled by new customers and an increase in the average revenue it makes per customer.

Indeed, fuboTV added 263,000 paying subs in the third quarter from the second. That's 108% higher than at the same time last year, and the company now boasts over 1 million paying subscribers. Management expects this momentum to continue and raised targets for the rest of the year.

So, with all this good news, why is the stock crashing? It starts with fuboTV's economics. The company is not yet profitable. In fact, in its most recent quarter, the company lost $105.9 million on revenue of $156.7 million. Continuing losses and aggressive investments in growth have left the company with $393 million in cash on the balance sheet. The combination of quarterly losses and a light cash balance has investors concerned.

That being said, fuboTV is improving on its profit margins as it grows users and revenue. If it keeps increasing at this rate, it is only a matter of time before it turns the corner on profitability. However, that's a big if, and that's why I am waiting for the price to fall further before I buy fuboTV stock.

A recipe for streaming success

Jennifer Saibil (Roku): Roku investors were thrown by the recent third-quarter earnings report and sent the stock price down. But they shouldn't have been. We're at the end of the pandemic-fueled explosive growth season, as demonstrated by every streaming company, including Netflix's decline in the North America region and Disney's underwhelming new subscriber count.

I'll tell you why I don't think Roku investors need to worry.

Roku's business is solid. Its platform business, which comprises partner relationships and its ad revenue, grew by an impressive 82% in the third quarter. This is the future of its business, and advertisers continue to move their business over to streaming as viewers move over. The top 10 cable advertisers doubled their spend on Roku in Q3, and the company is expanding its total addressable market by reaching out to digital-first advertisers in addition to traditional TV advertisers. This segment has huge growth potential, and while it's tied to subscriber growth, it doesn't affect revenue in the same way as paid subscriber revenue. It's most specifically tied to viewing hours growth, which increased 21% year over year in Q3, as well as over Q2 2021.

Management said, "While the pandemic has had different impacts on different parts of our business, the secular shift to streaming remains intact." The company's player revenue, which accounts for sales from the company's streaming devices, will be affected by supply chain backups. But platform revenue is well positioned to keep shining.

The stock still trades at an expensive valuation of 147 times forward one-year earnings. But it's come down from earlier highs along with the share price. Roku is a stock with high growth prospects, and as the price falls, it becomes an even more compelling buy.

John Ballard owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Netflix, Roku, Walt Disney, and fuboTV, Inc. The Motley Fool has a disclosure policy.

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