The S&P 500 fell by 19% in 2022, but it has rallied about % to start the new year. I've seen some investors and traders call this a "junk rally," suggesting that it's all due to speculation and will likely fizzle out quickly.
And while that may be true for many risky stocks, there are a couple of growth stocks I can see rising even higher from where they are today. Both Roku (ROKU 0.15%) and Cano Health (CANO) are up more than 30%. Here's why their shares may not have peaked just yet.
1. Roku
Roku has been red hot in 2023, up an incredible 62% already. Unfortunately, due to the 82% decline it suffered last year as growth stocks nosedived, it is still well down from where it was a year ago when it was trading at around $140.
A big reason for Roku's struggles last year is that the company was unprofitable and the ad market simply wasn't strong. Companies were pulling back on spending as they were worried about a possible recession. And while that risk hasn't disappeared, the entertainment company's latest earnings report displayed a glimmer of hope for investors.
Roku, which is known for its streaming platform and dongles that can transform a standard TV into a smart one, reported its fourth-quarter earnings last week. And it beat expectations on both its top and bottom lines. Revenue of $867 million looked particularly strong, as analysts were only expecting $802 million for the period ended Dec. 31. The company's per-share loss of $1.70 also wasn't as bad as the $1.73 that analysts were projecting.
These are encouraging numbers as they suggest that the ad market is showing signs of strength. If that is the case and if that trend continues as the year goes on, there could be even better results ahead for Roku's business, making the stock an even better buy.
2. Cano Health
Shares of Cano Health have climbed 12% this year. Like Roku, the healthcare company had an abysmal performance in 2022, seeing its stock tank 85%. A year ago, the stock was trading at around $6 -- more than three times where it is right now.
In October 2022, its shares nosedived after it was reported that CVS Health was no longer looking to acquire the business. Prior to that, there were rumors that both CVS and Humana were potential suitors. There's been no word of Humana backing out.
So far this year, there haven't been any significant developments at Cano Health, and so the stock's recent rally is likely due to the general market recovery. Cano operates primary care centers that focus on senior care. As of the company's most recent investor presentation in November 2022, it had 151 medical centers, with the vast majority in Florida (110). That's up from the 130 medical centers it finished with in 2021.
Over the trailing 12 months, the company has generated $2.6 billion in revenue, but it has remained unprofitable, incurring a loss of $58 million during that time frame. The company's operating expenses and overhead have been rising along with its rapid growth, making it difficult for Cano to turn a profit.
Now with CVS recently opting to buy Oak Street Health for more than $10 billion, that could help Cano Health fetch a better price. Oak Street has reported less than $2 billion in sales over its past four quarters, and its losses have been steeper at $515 million.
While both businesses are unprofitable, primary care has been a hot area to invest in of late with many companies, including tech giant Amazon, getting in on the action. Last year, Amazon announced plans to acquire 1Life Healthcare, another company that while unprofitable, could open up some exciting growth opportunities for the business.
Oak Street's numbers don't look as good as Cano's but that doesn't mean Cano will go for a better price should a company acquire it as there are many other factors to consider in an acquisition. But it does suggest there could be more upside for the healthcare stock as its valuation is a relatively modest $830 million.
Buying the stock, which trades at around its book value, could be a good move for investors to make today. Even if a deal doesn't end up happening, Cano offers investors some great value for their money.
