Stocks fall for a variety of reasons, but if you stick with growing companies, you're stacking the odds in your favor that you'll grow your money over the long haul.
To avoid the risk of picking a dud, I would look at industry leaders that fell the most in the market sell-off last year but still have plenty of revenue-growing opportunities to expand. If you have $500 to spare, here are two stocks that could double off their recent lows within the next five years.
1. Micron Technology
The world is rapidly adopting advanced computing technologies like artificial intelligence and cloud computing. Data center operators and individual PC users always need faster memory and storage chips to keep up with the latest computing technologies, and that plays to Micron Technology's (MU -0.60%) strength as one of the leaders in non-volatile flash memory (NAND), dynamic random access memory (DRAM), and solid-state storage drives (SSDs).
The memory and storage market is prone to swings in selling prices, which are influenced by supply and demand. The weak macro environment over the last year created the greatest supply and demand imbalance in over a decade. As a result, Micron's revenue collapsed, which caused the stock price to plummet.
These bouts of weak demand are the best time to buy shares of Micron. The long-term growth of data and the need to process and store it should remain consistent. That's why over the last decade Micron was still able to grow its revenue to over $30 billion despite periods of lower selling prices along the way.
MU Revenue (TTM) data by YCharts
It might take another few quarters before revenue starts to stabilize. While some of Micron's end markets, like PC and smartphones, are seeing inventory levels start to normalize, data center inventory is still fairly high. But demand across these end markets will inevitably return and drive up Micron's revenue, so now is the time to pounce while the stock is cheap. Analysts currently expect revenue to decline 46% in fiscal 2023 (which ends in September) before increasing by 44% in fiscal 2024.
The stock currently trades at a price-to-book (P/B) ratio of 1.35, which is toward the lower end of its 10-year trading range. When memory prices were firm and demand was strong in 2021, Micron's P/B multiple was over 2.
Once supply and demand are balanced again, pushing selling prices for memory chips back up, Micron stock could double in value from a combination of higher profits and valuation.
2. Roku
Roku (ROKU 0.15%) is the most widely used TV operating system in the U.S., with 70 million active accounts and growing. Most of the company's revenue comes from advertising on its platform, but slowed ad spending in 2022 caused the company's revenue growth to decelerate, which sent the stock down to the bargain bin. It may not stay down for long.
The U.S. TV advertising market was estimated at over $60 billion in 2021, according to Statista, but spending on connected TV platforms is projected to grow from $14 billion to $38 billion from 2021 through 2026. This shift has already been driving enormous growth for Roku, where its trailing revenue has quadrupled over the last five years.
ROKU Revenue (TTM) data by YCharts
Roku's growing base of users should soak up a fair share of the ad spend that's shifting to connected TV platforms. Roku's free ad-supported service, The Roku Channel, has been the fastest-growing area of the company. As more users engage with the free content available with the service, it opens up tremendous opportunities to attract advertisers.
The Roku Channel reaches an estimated 100 million U.S. households, but what often gets overlooked is that Roku continues to expand overseas. Roku's operating system, which comes pre-installed on certain TV models, was the No. 1 selling smart TV in Canada and Mexico in the fourth quarter, according to NPD Group.
There's tremendous opportunity for Roku to keep winning over more households around the world and position itself for the tsunami of ad spending that will begin to flow to streaming platforms over the next decade. That's why investors should consider starting a small position in the stock while it's down. At a price-to-sales ratio of 3.1, the stock is trading well below its five-year average P/S multiple of 11. Once revenue growth accelerates again, the stock could easily double within five years as the market assigns it a higher valuation.
