Market volatility comes and goes, but holding a portfolio of well-chosen growth stocks is the easiest way to build wealth. It doesn't matter if you have $50 or $5,000; regularly buying shares of growing businesses in the stock market is one of the smartest moves you can make for your financial future.
Here are two stocks than can deliver great returns for investors over the long term.
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1. Amazon
Shares of Amazon (AMZN 1.62%) have doubled since the market bottomed out in 2022, but shares are up only 58% in the last five years. This is despite a 400% increase in the company's net income over that period. Amazon's opportunity to improve margins, especially with the use of robots in its fulfillment network, is an opportunity that is not reflected in the stock's valuation.
On a trailing-12-month basis, Amazon's operating cash flow, or cash from operations (CFO), increased 15% year over year to $114 billion in the first quarter. It has increased meaningfully over the past few years, as management focuses on improving customer experiences while lowering costs. This growth in cash flow has brought Amazon's price-to-CFO multiple down to 21, below its previous 10-year average of 27.
If Amazon can continue to grow its profits and operating cash flow at high rates in the coming years, the stock would be significantly undervalued right now and offer attractive upside.
Amazon has added more than 750,000 robots across its retail business, which is speeding up deliveries while lowering costs. Amazon's investments in artificial intelligence (AI) could make it one of the leaders in robotics -- an industry that could be worth trillions within the next few decades.
Just looking at Amazon's opportunity to lower costs with robots in its e-commerce warehouses, Morgan Stanley analyst Brian Nowak believes the company could save more than $10 billion in costs by 2030. But that estimate is based on less than half of Amazon's orders in the U.S. being processed by robots. As it scales robots to all fulfillment centers, including assisting with delivering packages to customers' door, the savings could add up significantly.
There's clearly a lot of room for Amazon to lower costs and improve margins over the long term. With the stock trading close to its lowest price-to-CFO multiple in 10 years, Wall Street hasn't figured this out yet, which makes it a compelling buy right now.
2. Roku
Roku (ROKU 2.05%) is one of the biggest brands in digital entertainment. It is the No. 1 TV operating system in the U.S., Mexico, and Canada. Viewers spent more than 35 billion hours last quarter watching content on the platform.
The stock has been underwater due to challenges in the digital advertising market, which is how Roku makes money. The stock's underperformance the past few years has brought its valuation down to levels that may undervalue Roku's growth opportunity as more households ditch cable in favor of streaming.
Roku is well positioned to capture a significant share of digital ad spending flowing from traditional TV to streaming platforms. Its platform revenue grew 17% year over year in the first quarter, driven by healthy spending from advertisers.
Roku's ad revenue grew faster than the over-the-top ad market, which are the ads shown to consumers through streaming services. This indicates the value that leading brands are placing on Roku's large audience reach.
Roku has multiple ways to monetize its platform and drive revenue growth. Management is looking to take advantage of its home screen, where millions are landing every time they fire up their Roku TV. This is prime digital real estate for advertisers. Management also sees opportunities to better take advantage of improving the user interface for content discovery and subscriptions to third-party services, where Roku also earns revenue.
Roku's growth is ultimately being driven by millions of people still in the process of ditching costly cable subscriptions for more affordable streaming options. The business is still relatively small compared to the revenue it could generate in 10 years. Connected TV advertising is one of the fastest-growing segments of the $800 billion digital ad market. Roku generated $4.2 billion in trailing revenue, which is a small fraction of the $35 billion connected TV ad market.
The stock's 2.94 price-to-sales multiple undervalues the long-term growth Roku will continue to see from more users signing up and advertisers investing more to get exposure to this large audience on the platform.
