ETFs

2 Roku-rich ETFs to play if you want to follow Cathie Wood – May 9, 2024

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Investing in speculative companies with long-term profit potential is Cathie Wood’s trademark strategy. Cathie Wood, famous for the success of her Ark Investment’s winning products, is normally focused on technology.

But the technology sector has borne the brunt of late due to higher tariffs. As a result, some Cathie Wood products met a sad fate. Notably, ARK Innovation ETF (ARKKFree report) lost 7.9% this year (as of May 7, 2024). However, several tech darlings did not have to suffer such a loss. Actually, ARK Next Generation Internet ETF (ARKWFree report) And Ark Fintech Innovation ETF (ARKFFree report) increased by 7.8% and 8.1% respectively this year.

If you want to follow Cathie Wood’s latest stock bet, you’ll see that Ark funds have actively invested in Roku (ROKUFree report) . Wood purchased a significant number of shares in April, indicating his confidence in the company’s potential despite the recent decline in its stock price.

ROKU stock is down more than 30% so far this year (as of May 7, 2024). Wood’s investment strategy often involves doubling down on his favored securities during periods of weak prices. ROKU has 8% weight each in ARKW and ARKK.

Let’s take a deeper look.

Roku’s Dominant Position in the Streaming Industry

Roku has positioned itself as a leading player in the streaming industry, with over 80 million active accounts. The company manufactures streaming devices and licenses its software, cementing its position as a major player in the market.

Optimistic results in the first quarter

Roku reported a first-quarter 2024 loss of 35 cents per share, narrower than the Zacks Consensus Estimate of a loss of 64 cents. The company had a loss of $1.38 per share in the year-ago quarter. Revenue rose 18.9% from last year’s quarter to $881.47 million, beating the consensus mark of 3.58%.

Growth in streaming households and streaming hours of The Roku Channel drove first-quarter performance. Streaming household net additions were 1.6 million in the first quarter, bringing the total to 81.6 million worldwide, reflecting greater engagement and more monetization opportunities.

Upward revisions to earnings estimates

Over the past seven days, one in nine analysts have increased their earnings estimates on Roku for the current quarter, while eight analysts have taken the same route over the past month. For the full year, one analyst raised his estimate and seven did the same in the last 30 days.

The Zacks Consensus Estimate for the current quarter is for a loss of 45 cents, up from a loss of 48 cents projected seven days ago and a loss of 57 cents projected a month ago. For the full year, the consensus estimate for the loss narrowed by 22 cents over the past month and 3 cents over the past week.

Roku Price Target

Based on short-term price targets offered by 17 analysts, Roku’s average price target stands at $76.82. Forecasts range from a low of $52.00 to a high of $105.00. The average price target represents a 28.9% increase from the last closing price of $59.55 (as of May 8, 2024).

A reason to worry?

Some analysts have expressed concerns about Roku’s future, citing continued losses and fierce competition in the industry. Morningstar analyst Matthew Dolgin acknowledged Roku’s strong performance remains skeptical of the stock due to its high customer acquisition costs and lack of sustainable competitive advantages.

Morningstar analyst Matthew Dolgin offered a “no gap” rating on Roku, according to a Street.com article cited on Yahoo. Other analysts, such as those at Jefferies and Wells Fargo, have also offered cautious outlooks, according to the aforementioned source.

Focus on ETFs

If you want to follow Cathie Wood but still fear the issues reported by analysts at Morningstar, Jefferies, and Wells Fargo, you can go the ETF route and play ARKK and ARKW. An ETF approach minimizes company-specific risks to a large extent. While ROKU stock has seen a bloodbath this year, ARKW is in the green and ARKK has seen smaller losses.


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