Adhere to the Gardner-Kretzmann continuum This suggests that individual investors hold at least as many stocks as they have years, I currently have 36 major holdings in my retirement accountAlthough I also have many other starting size positions in other stocks, I concentrate the majority of my monthly dollar cost averaging (DCA) purchases on these 36 stocks.
So far in 2024, my worst performing stocks among these 36 companies have been fintech stocks. SoFi Technologies (NASDAQ:SOFI) and streaming platform Year (NASDAQ: ROKU), down between 36% and 38%. As discouraging as these declines are, they are part and parcel of being an individual investor – and I have absolutely no interest in selling at this time.
For what?
I have a serious case of FOMO (fear of missing out) when it comes to selling a stock too early, only to watch it become a multibagger over the next decades. Nvidia when its stock price barely moved for a decade in the early 2000s. Or how much Amazon dealt with the failure of its Fire phone launch. Or how disjointed it is Netflix looked in the middle of his Qwikster debacle.
All of these stocks have since become multibaggers after what initially seemed like reasonable periods to sell. So instead of selling, I would rather pause my DCA additions and leave a struggling stock alone – see what happens over a longer period.
That said, here’s why I’m far from ready to panic about the massive selloff seen so far in 2024 for SoFi and Roku — and why one of them looks downright interesting at today’s prices.
1. SoFi Technologies
Shares of diversified fintech SoFi are down about 35% so far in 2024, despite the company beating estimates for both revenue and net income in its most recent quarter. After growing 26% in revenue in the first quarter of 2024 — despite slow growth in its largest unit, lending (personal, student and home loans), SoFi is becoming a full-stack financial powerhouse.
The company’s fledgling financial services segment generated 86% sales growth as people continued to flock to SoFi Money accounts, which currently offer 4.6% interest rates. Those attractive rates generated an additional $3 billion in deposits during the quarter, bringing the company’s total to more than $21 billion. These deposits are critical to the company’s long-term success, providing a stable source (90% of which comes from recurring direct deposits) of lower-cost funding for its lending segment.
At the same time, the company’s technology platform segment – which management wants to transform into the “AWS (Amazon Web Services) of fintech” – grew revenue 21%, as the company continued to court the major banks of North and South America.
The best part for investors? Despite the market’s negative reaction to management’s cautious outlook for the second quarter, SoFi’s net profit margin continues to grow (aside from a one-off event in 2023).
With management expecting earnings per share to grow to between $0.55 and $0.80 by 2026, SoFi’s current stock price of around $6.50 could prove to be a steep discount. Additionally, CEO Anthony Noto continues to buy shares in the company. Given SoFi’s growth potential, early profitability, and strong liquidity from its growing deposit base, I’ll happily continue to buy shares alongside Noto.
2nd year
The stock price of streaming platform leader Roku has continued its steep decline since it was deemed one of the “darlings of the pandemic” in 2020 and 2021. It is down 38%. so far in 2024. Now 88% below its all-time highs, Roku trades with a price-to-sales (P/S) ratio of just 2.2, which is close to its lowest level ever at 1.7.
Naturally, this sharp decline in price and valuation makes the company a rather interesting turnaround story. After streaming households grew 14% to 84 million and streaming hours grew 23% to 31 billion in the first quarter of 2024, there’s a strong case to be made that Roku is worth buying today ‘today.
Additionally, the company’s Roku Channel has now become the third-largest streaming app on its platform, helping to drive approximately 120 million viewers to the Roku home screen each day.
After establishing a partnership with The exchange office With its industry-leading connected TV (CTV) advertising prowess, Roku is poised to improve monetization across its 84 million households. By combining The Trade Desk’s advertising solutions and extensive customer list with Roku’s wealth of customer data, the partnership is expected to enable advertisers to deliver more targeted marketing campaigns, maximizing their ad spend.
With streaming services now capturing 60% of total hours watched compared to linear TV, but receiving only 30% of total ad spend, there remains a long runway for this partnership to continue to bear fruit.
As great as all of these factors are, however, I’m not ready to bet everything on Roku at today’s potentially discounted price. While free cash flow (FCF) has improved significantly over the past year following the arrival of CFO Dan Jedda from Amazon and later Point correctionstock-based compensation (SBC) remains a concern for me.
Consider the following table.
Once we subtract Roku’s SBC from its FCF, we see that it only has an adjusted FCF margin of 1.6% over the past year. While this is an improvement from negative 2022 FCF, I would prefer to be patient with Roku and see if its cash generation and profitability can continue to improve.
However, thanks to the continued shift in ad spend toward CTV in favor of Roku, the company’s deal with The Trade Desk, and its industry-leading reach, I I wouldn’t dream I have no plans to sell my position yet. With Roku already having a healthy 2% position in my retirement account, I’m perfectly happy to be patient – and give the long-term megatrends that are working in the company’s favor time to manifest themselves.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn Lindquist holds positions in Netflix, Nvidia, Roku, SoFi Technologies, and The Trade Desk. The Motley Fool holds positions in and recommends Amazon, Netflix, Nvidia, Roku, Stitch Fix, and The Trade Desk. The Motley Fool has a disclosure policy.
Halfway to 2024: Why I’m Not Panicing About the 2 Worst-Performing Growth Stocks in My Retirement Account was originally published by The Motley Fool
