ROKU

2 Growth Stocks That Could Double Your Money in 2023, According to Wall Street

The S&P 500 is down about 20% this year, erasing about $8.2 trillion in wealth. And more than half of investors expect the stock market to continue falling in the next six months, according to a survey from the American Association of Individual Investors. Despite the widespread bearish sentiment, some Wall Street analysts still see opportunities for triple-digit returns in the next year.

For instance, Jason Bazinet of Citigroup has a 12-month price target of $125 per share on Roku (NASDAQ: ROKU), which implies 148% upside from its current price. Similarly, Michael Ng of Goldman Sachs currently has a 12-month target of $134 on Block (NYSE: SQ), which suggests 139% upside. If those forecasts come to fruition, shareholders would more than double their money before the end of 2023.

Is that likely to happen? Let's take a closer look at these two growth stocks and try to find an answer.

1. Roku: The most popular streaming platform by a wide margin

Roku brought the first streaming device to market in 2008, shortly after Netflix debuted the first streaming service.

The company parlayed its first-mover status into a more durable competitive advantage in the time since. Roku is now the leading streaming platform in the U.S., Canada, and Mexico (as measured by hours streamed), and its popularity with viewers made the company a valuable partner to content publishers and advertisers.

That said, Roku still struggled in the current economy. High inflation blunted consumer spending, and many brands compensated by cutting their ad budgets. That domino effect led to disappointing financial results in the second quarter. Revenue climbed just 18% to $764 million, and the company posted a loss of $0.82 per diluted share based on generally accepted accounting principles (GAAP), down from a profit of $0.52 per diluted share in the prior year. Some investors see that as worrisome.

However, Bazinet believes the macroeconomic environment alone is to blame, not a material weakness in the underlying business, and it's hard to disagree. Roku is so dominant in North America that its platform accounted for more than 30% of all streaming time globally in the second quarter, while runner-up Amazon held just a 16% market share. What's more, Roku devices (players and smart TVs) accounted for 23% of all streaming devices globally, while Amazon ranked second with a 12% market share.

Not surprisingly, Roku has become a powerhouse in connected TV (CTV) advertising. Its devices accounted for 44% of programmatic CTV ad spending through the first half of 2022, more than the next three competitors -- Samsung, Amazon, and Apple -- combined.

Roku should benefit significantly as brands continue to shift ad budgets from legacy TV to streaming TV. In fact, eMarketer says CTV ad spending in the U.S. alone will grow by 20% annually to reach $39 billion by 2026, and BMO Capital Markets thinks that figure will hit $100 billion by 2030.

Currently, shares trade at 2.3 times sales, essentially the cheapest valuation since the company went public in 2017. To that end, shareholders could see triple-digit returns in the next year, though the macroeconomic environment would need to improve substantially, and no one knows when that will happen. For that reason, Roku is better viewed as a long-term investment, and now is a good time for patient investors to buy this growth stock.

2. Block: Big opportunities with Cash App and Square

Block helps sellers run an omnichannel business with its Square ecosystem, an integrated suite of hardware, software, and financial services. Similarly, the company helps consumers manage their finances with its Cash App, a digital wallet that brings together the ability to deposit, borrow, spend, and invest money on a single platform.

Block continued to post solid financial results over the past year, in spite of macroeconomic pressures on its business. Gross profit jumped 37% to $5.1 billion, fueled by strong growth in Square and Cash App, and free cash flow more than doubled to reach $563 million. Goldman analyst Michael Ng recently highlighted two reasons the company is well positioned to maintain that momentum.

First, Block has a big opportunity to accelerate Cash App growth by transforming the platform into a commerce engine. Block is tackling that by integrating Cash App with Afterpay, its recently acquired buy now, pay later (BNPL) platform. The company is rolling out a Discover tab to the Cash App interface, allowing consumers to browse and shop from the Afterpay Shop Directory, a marketplace with products from over 140,000 brands. That should drive more sales for Afterpay sellers, including Square sellers that have adopted the BNPL platform.

Second, Block is successfully moving upmarket, as mid-market sellers (i.e. those with more than $500,000 in annual sales) continue to adopt Square products. In the second quarter, mid-market sellers accounted for 39% of gross payment volume, up from 35% last year, and 27% two years ago. Premium point-of-sale software tailored to restaurants and retail stores is a key driver of that trend, and the upmarket momentum bodes particularly well for Block, as larger sellers tend to use more software products and have less churn.

Collectively, Block puts its addressable market at $190 billion in gross profit in 2022, and shares currently trade at 1.8 times sales, just off the five-year low of 1.7 times sales. That creates a great buying opportunity for patient investors. But triple-digit returns in the next year are unlikely in the current economy.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Amazon, Block, Inc., and Roku. The Motley Fool has positions in and recommends Amazon, Apple, Block, Inc., Goldman Sachs, Netflix, and Roku. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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