2023 was a breath a fresh air for many investors. Many beaten-down stocks started strong recoveries from the painful 2022 session, driven by secular trends such as the artificial intelligence (AI) bonanza and lower inflation rates. But some top-quality stocks didn't join the party at all while others got started but ended the year on a sour note.
Looking ahead to a promising 2024 for the stock market, I see deep-discount value in some of my favorite tech stocks right now. They look like no-brainer investments for 2024 and way beyond, allowing savvy investors to take advantage of their oddly low share prices. My list of great tech stocks lining up for a bull run this year involves Roku (ROKU +3.86%) and Twilio (TWLO +2.08%). Either or both of these stocks are poised for strong gains, and you should consider adding them to your portfolio while they're still cheap.
NASDAQ: ROKU
Key Data Points
1. Roku
Media-streaming platform and technology expert Roku took a heavy pounding in 2021 and 2022. Investors were quick to abandon the former market darling when life started feeling normal again after the coronavirus lockdowns. Financial aficionados focused on the company's slower revenue growth and negative earnings amid the inflation panic.
As a result, Roku's share prices fell more than 90% below the all-time highs of 2021. Despite more than doubling with a 125% price gain in 2023, Roku's stock took a 21% tumble over the last six weeks and still trade 82% below those record prices from that glorious summer nearly three years ago.
You know what's growing again after a brief pause last year, though? That would be Roku's revenues and free cash flows:
ROKU Revenue (TTM) data by YCharts
As you can see, Roku is producing cash profits again on a trailing basis after burning more cash than it collected for nearly a full year. At the same time, top-line sales rose 11% year over year in the second quarter of 2023 and 20% in the next report, ending a spell of almost perfectly flat sales trends.
The positive trend should continue from there as Roku takes advantage of a healthier ad-sales market and unstoppable account growth. Your average Wall Street analyst expects a 17% revenue uptick in next month's fourth-quarter report, with the caveat that Roku has a habit of outperforming analyst expectations on the top line.
"We had a solid rebound in video ads in Q3 and we expect the [year-over-year] growth rate of video ads in Q4 to be similar," Roku CEO Anthony Wood said in November's third-quarter report. "We have significant scale and engagement, and we expect to grow ad share."
So 2024 is shaping up to a good year, and Roku's long-term growth prospects were never in doubt. The company provides user-friendly viewing experiences for every service worth mentioning in the explosive streaming video market. Roku is an established leader in North America, expanding into developing markets such as Europe and Latin America right now. A global quest for conquest will surely follow, leaning on the lessons learned from the first few target markets.
Remember, Roku isn't all about selling media-streaming set-top boxes and HDMI stocks anymore. Devices accounted for just 13% of total revenues in the first three quarters of 2023, overshadowed by so-called platform revenues that include software licenses and ad sales.
Roku's revamped business model should deliver much wider profit margins in due time, and I can't wait to see the stock rise as a result. It's high time to grab a few shares while the company remains misunderstood and the stock looks undervalued.
NYSE: TWLO
Key Data Points
2. Twilio
You may know Twilio as one of growth-investing phenom Cathie Wood's favorite AI stocks without knowing much about the company's business. In short, Twilio provides cloud-based communication services to other companies, making it easy to develop and support unique and effective communication tools no matter how unusual and specific the client's requirements might be.
Wood has provided plenty of high-profile support for Twilio over the last two years, building a $453 million stake in the company through three different exchange-traded funds. She famously sold some Nvidia stock last year in order to double down on ARK's Twilio holdings, among others. The stock is now the eight-largest investment among the firm's 50 growth-oriented stock names. Despite this celebrity investor backing and a 55% gain in 2023, Twilio's stock is down by 57% since Wood's accumulation of the stock started in March 2022.
And I see better days ahead.
In a recent investor conference, Twilio CFO Aidan Viggiano explained why the company expects stronger results in 2024.
Clients started sending fewer messages and making fewer cloud-based voice calls during the inflation crisis. That makes sense from a budgeting standpoint since Twilio charges its customers based on usage volumes, not flat-rate subscription fees. That downtrend is ending. Usage volumes have stabilized in the communications segment, which accounts for nearly 90% of Twilio's total revenues, suggesting renewed growth in the quarters ahead. The sales trend has already ticked up in the smaller data and applications division.
You should expect a fresh acceleration of these positive trends in 2024. You see, Twilio is investing in its growth-boosting efforts again, largely rebuilding its sales force in the third quarter of 2023. Sales are going up while operating costs are going down -- key ingredients in a healthier bottom line. Twilio's free cash flows took a deep dip in the red ink in recent years, but has surged back to positive cash profits in the last two reports:
TWLO Free Cash Flow data by YCharts
You can call Twilio a turnaround story if you want. It's also fair to describe it as a key provider of valuable technology tools, ready to spring back into high-growth action after a couple of slow years.
Either way, Cathie Wood loves this stock and I think it's deeply underappreciated today. Like Roku, Twilio's stock seems primed for a fantastic run if 2024 delivers a more robust economy -- and that looks more than likely. In other words, Twilio is another undervalued growth stock, spring-loaded for a tremendous recovery. It belongs on any serious growth investor's list of ideas for further consideration.
