It's a good idea to identify great growth stocks to buy when it's still a bear market. The market has been back and forth this year; it was up nearly 20% this year by the end of July, coming close to ending the bear market, before dropping back down as retailers began to report major problems with growth and inventory. It's now up just 10%, pushing back the point at which observers officially start a bull market recovery.
Fear not, though: There are reasons to appreciate lower prices when you're ready to invest.
If you have $5,000 available to invest after paying off debt and setting aside an emergency fund, there are some screaming buys available right now -- among them, SoFi (SOFI 3.69%) and Roku (ROKU -10.29%).
1. The future of finance
SoFi has broken out of its mold as an issuer of student loans and turned itself into a banking hub for students, postgrads, young professionals, and increasingly, everyone else.
Like many fintech companies and other disruptors, SoFi has done this by building its business with a digital core from the ground up, providing a smooth, easy-to-use interface. (That's easier for a young business that doesn't have to work around the fussiness of legacy systems.) For SoFi, the result appeals to a modern, on-the-go customer, and its low fees and high-interest savings accounts don't hurt, either.
In addition to student loans, SoFi now offers all kinds of loans as well as bank accounts, trading accounts, credit cards, and more. It competes with the top digital banks, including all of the major, large U.S. banks, but is growing much faster. Revenue grew by 37% year over year in the third quarter, and the company added 584,000 new customers in the quarter, boosting its total to 6.2 million -- a 44% year-over-year increase. Legacy banks can't match that kind of growth.
Since SoFi changed its operational strategy to offer a one-stop shop of financial services and products, its customers have been using more of its products, feeding into SoFi's financial services productivity loop. Not only are new products lucrative on their own, but a growing deposit base increases its net interest margin and gives SoFi more money to lend, at higher interest rates.
SoFi got its own bank charter last year when it acquired Golden Pacific Bancorp, and SoFi bank was profitable in Q2 2023 with $63 million in net income and a 17% net profit margin.
Management is guiding for GAAP (generally accepted accounting principles) profitability by the end of the year.
SoFi stock is up 59% this year, but down 35% since August. It trades at about 3.7 times trailing 12-month sales, which is expensive for a bank, but cheap for a high-growth stock. It gets a premium for that, anyway. Smart investors should consider buying SoFi shares before it becomes a profitable financial powerhouse.
2. The future of streaming
Roku operates a different kind of business from the major streamers. It provides free content through its network of channels and makes money from advertisers, and it also has a hardware business supplying streaming devices for customers to stream most networks.
The company provides the most-used streaming operating system in the U.S. as well as some foreign markets, but Roku makes most of its revenue from ad sales.
Both of these segments reported revenue increases in the second quarter -- 9% for devices and 11% for what it calls platform revenue. But the company has been struggling with profitability, and it has reported operating losses for the past five quarters.
This is a pressured macroeconomic environment. Advertisers are cutting their marketing budgets, and the pandemic-connected surge in streaming has tapered off.
Roku's active accounts increased 16% year over year in the second quarter, and streaming hours increased 21%. These are the kinds of strong numbers advertisers will want to see, but average revenue per user was down 16% as streaming viewers increased at a faster pace than ad revenue. That's weighing on Roku now, but should result in higher revenue after advertisers start increasing their spending again.
In the meantime, Roku is working on innovative projects that could lead to higher revenue now and become big sales drivers down the line. For example, it has created a program with Shopify where viewers can click on products in ads for Shopify-powered merchants, and buy those products directly through their Roku-powered TVs.
Roku is well-positioned to rebound and improve its profits when the economic climate becomes more hospitable, and the company demonstrating relevance and popularity even now.
Like many other stocks as well as the broader market, Roku stock has dropped from its 2023 highs, but it's still up 47% year to date. At their recent price, shares traded at 2.6 times trailing 12-month sales, which is an attractive entry point for a company with robust long-term opportunities. Smart investors would be wise to take a look.
