The stock market has been less predictable than usual lately. As I'm writing this on June 20, the S&P 500 (SNPINDEX: ^GSPC) index is up only 1.5% year to date. But this mellow return included a deep dip in April, so the index has gained 24% from the bottom of its 52-week low.
So, things are extra volatile this year, and I understand if you'd rather keep some cash on hand right now. But even now, a few stocks can inspire me to put my extra cash to work. Read on to see why my hand hovers over the "buy" button for Roku (ROKU -0.52%), Costco (COST 0.55%), and Target (TGT 0.58%) in June 2025.
Image source: Getty Images.
Roku's rollercoaster
Media-streaming technology veteran Roku has had quite a ride lately. Its stock price shot up by 50% over the past year but has taken a slight detour more recently, dropping 3% in the last six months.
The growth story is still alive and well, with excitement over new deals, such as the recent Amazon (AMZN -1.38%) ad partnership, keeping optimism afloat. However, the company still isn't showing a profit, so valuation ratios based on profitability don't make any sense. Instead, you can look at Roku's price-to-sales (P/S) ratio, which sits at a reasonable 2.8. That metric floated in double-digit territory four years ago.
For now, Roku is acting a bit like the kid in class who has tons of potential but hasn't quite turned in the homework -- yet. The platform is growing, and recent partnerships could be a game changer, but the market wants to see proof that all these moves will translate to real, scalable profits. That's why Roku's stock looks cheap in this period of growth-focused operations and limited profits.
If you're in it for the long haul and don't mind a few twists and turns, Roku still looks like a compelling candidate for a growth-focused portfolio. It's one of the few stocks I don't mind buying right now since its short-term price moves tend to be unpredictable anyway. This is a long-term growth idea.
Costco's secret sauce
Wholesale warehouse retailer Costco is a different story. The stock has been soaring for years, lifting the P/S ratio to a lofty 1.6. That would be low in the high-growth media-streaming market, but Costco's valuation looks luxurious next to other large-scale retailers.
But the stock is rising for good reasons. The company has more cash and less debt than sector giant Walmart (WMT 1.14%). Trailing sales are up 61% over the last five years, while Walmart's sales increased by only 26%. Costco's return on invested capital is 26%, nearly twice that of Walmart's 14% reading.
Long story short, Costco runs a superior business, and its stock deserves a price premium.
This stock looked expensive five years ago, with a 5-year price gain of 114% at the time. By comparison, the S&P rose 47%, and Walmart gained 65% over the same time span. But if you cashed in your Costco gains or sat on your hands in 2020, you've missed out on a market-beating 227% return in the last 5 years:
Costco's stock isn't cheap, but you get what you pay for -- a world-class retailer with a history of great shareholder returns.
Target's rejuvenated "Tar-zhay" strategy
Last but not least, fellow big-box retailer Target tells another compelling story. Target's stock is down 21% in 5 years, and the P/S ratio stands at a skimpy 0.4. If investors are paying extra for Costco's incredible performance, they're stuffing Target shares in Wall Street's bargain bin. This is a turnaround story, not a march to ever greater heights.
Turnarounds are risky, but this one should have a happy ending. The company is no longer competing against Walmart and Costco on lower prices, but is refocusing on the affordable-luxury status it once held. The new strategy leans on the nearly forgotten "Tar-zhay" branding.
"In a world where shopping has become less inspiring, consumers expect us to be the place they can recapture the joy of retail," CEO Brian Cornell said in the fourth-quarter 2024 earnings call. "Our guests are looking for Tar-zhay. Consumers coined that term decades ago to define how we elevate the everything, every day to something special, how we add unexpected fun into shopping that would be otherwise routine."
So, Target is betting the barn on a better shopping experience. The stores need to feel friendlier than Costco's or Walmart's low-cost emporiums. Nobody likes an empty shelf, so popular items must always be in stock -- even if it costs more to run a more complete supply chain. And the Target Circle loyalty program can't be all about discounts, which is why it also offers personalized product recommendations and extended product returns.
Target's stock is priced for absolute disaster, but I see good things happening in the turnaround effort. It's a risky bet, but one worth making in the summer of 2025.
