When it comes to investing in stocks, there’s no shortage of hot tips and advice on what to buy. One popular tactic is to copy what the biggest names in the investing business are doing.
Blindly replicating recent moves from big investors isn’t exactly advisable, though. For instance, their strategies and goals will likely be different from yours, so due diligence is strongly advised.
Nevertheless, it’s sometimes worth taking note when the big boys make some changes. Two stocks that recently got some positive attention are…
Facebook named a JPMorgan top pick
The social media giant has gotten plenty of harsh criticism the last couple of years. From accusations of everything from election tampering on its platform to personal data mishandling, the knives have been out against Facebook. Nevertheless, buying a well-run company during peak pessimism can be a rewarding endeavor. That’s the take that analysts at JPMorgan Chase took in December 2018 (when, incidentally, the stock market was also in the grips of what is now in the record books as a 20% tumble from highs).
It proved to be good timing, as Facebook is up roughly 45% so far in 2019. However, even with the big run-up, JPMorgan again listed the company as one of its “top picks” after the third-quarter 2019 results. I agree (full disclosure, it’s my third-largest holding).
Sure, the angst over Facebook’s activities hasn’t subsided. In fact, politicians continue to stir the pot, this time over the company’s unwillingness to outright halt political advertising. The company has shown a lack of desire to search for and take down political ads with false statements — although CEO Mark Zuckerberg explained why during the last quarterly conference call. Despite a large impediment to growth being laid in its path for some time, it’s still growing. Revenue is up 27.5% through the first three quarters of 2019, with north-of-20% growth initially called for from management in 2020 as well. Like it or not, Facebook’s social platform is a buy-and-hold for the long haul stock.
Citadel takes on 5% of Roku
Back in October, Ken Griffin’s hedge fund, Citadel Advisors, revealed via an SEC filing that it had scooped up 5% of Roku. The TV streaming device maker and connected TV platform is up over 400% since its IPO in September 2017 and up 300% in 2019 alone, so it may appear that the big institutional investor is getting to the party late. But Roku stock was in the midst of a price pullback from all-time highs in early October (and still is after its third-quarter report, as it was up as much as 360% on the year at one point). Are Griffin and his team of multibillion-dollar money managers right to buy the dip?
The cat is absolutely out of the bag on this one, and Roku continued to put up sizzling numbers in Q3. Revenue grew 50% year over year on the back of a 36% increase in active accounts, a 68% increase in streaming hours, and a 30% increase in average revenue per user. Huzzah! But beware: Share price has handily exceeded revenue growth this year, and free cash flow (basic profits after cash operating expenses and capital expenditures are paid) is barely positive at $6.9 million over the last 12-month stretch.
Granted, Roku is operating close to unprofitability by design, attempting to maximize growth now for a bigger payoff later. But this is still no cheap stock, even when using the woefully imperfect price-to-sales ratio. Roku currently trades for 15.4 times trailing 12-month sales. There’s no company on the market to use for a good apples-to-apples comparison, but humor me and use Netflix (NASDAQ:NFLX). Though the TV streaming leader has a lower gross profit margin, its top-line sales growth isn’t too far removed from Roku’s, yet it trades for only 7.0 times trailing 12-month sales.
Digitally connected TV is the way of the future, and though the recent dip in Roku is currently a shallow one when you consider the landfall return this year, I’m personally not a buyer at the moment. For those willing to stick it out for the long term though, now might be time to at least put this one on your watch list…
Continue reading at THE MOTLEY FOOL