We're just at the halfway point of 2023 and growth stocks have staged a surprising comeback after a woeful 2022. Investors are reacting to the economy's continued resilience even as the Federal Reserve has rapidly raised interest rates, and excitement over new artificial intelligence (AI) technologies has also lifted much of the tech sector.
No one knows what the second half of the year holds, but it does seem like the worst-case scenarios are off the table, and even if a recession hits, it could only be a mild one. That's good news for growth stocks. Keep reading to see two in particular that look set to deliver strong results ahead.
1. Roku
Shares of Roku (ROKU -10.29%) have taken it on the chin over the last couple of years as the pandemic winner overspent during the streaming boom, and saw its revenue growth grind to a halt as the digital ad market dried up.
The streaming industry is going through a correction right now with layoffs, and legacy media players are cutting back on content spending in order to drive profitability.
Roku, however, isn't threatened by the cuts among content providers, and it wins as long as streaming wins. By now, it's a foregone conclusion that streaming will replace linear TV, and that's great news for Roku because the company makes most of its profits through advertising, content distribution, and licensing fees.
As more streaming services offer advertising tiers, Roku should also benefit, and the company continues to see increased use, even as ad demand has been weak due to recession fears. In the first quarter, the company added 1.6 million active accounts and saw streaming hours grow to 25.1 billion, up 20% from a year ago.
That shows demand for Roku's product continues to be strong even as the ad business has lagged behind. And the ad market is expected to recover over the next few quarters, especially as comparisons get easier, and connected TV is seen as a high-value market by advertisers because their messages can be targeted to an engaged audience.
With the stock down more than 80% from its earlier peak, there's still plenty of room for recovery once the economy improves.
2. RH
RH (RH 2.28%), formerly known as Restoration Hardware, has also struggled following a boom in demand for home furnishings earlier during the stay-at-home period of the pandemic.
Despite the recent setback, which has led to declining revenue and profits for the company, RH is going full speed ahead with its growth strategy. It's expanding in Europe with the opening of RH England earlier this month, and plans to follow that with other flagship galleries across Europe.
The company is also expanding beyond home furnishings into a lifestyle brand that includes plane and yacht rentals, hotels, and restaurants. CEO Gary Friedman plans to launch a streaming service focused on architecture and design, building a media brand for the company and tapping into an unmet niche in streaming that will further reinforce the RH brand.
And the company aims to directly enter the housing market, buying homes and then outfitting them in RH furniture, known as RH Residences.
As a luxury brand and a home furnishings company, RH is subject to cyclicality, but it should experience a recovery once the housing market is on healthier ground. The U.S. is still short an estimated 4 million homes, and the rise of remote work has increased demand for larger spaces and therefore more home furnishings.
RH has been a long-term winner on the stock market, and the business is still highly profitable despite the macroeconomic challenges. The stock should return to its history of outperformance once the housing market starts to recover.
