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One way to navigate current market volatility is to buy shares of promising companies on dips. Investing while stocks are down can lead to significant long-term returns since every bear market will eventually give way to a bull run that will be even longer, according to the historical record. But which stocks should investors buy in this environment?
Let's consider two favorites of Cathie Wood, the founder and CEO of Ark Invest: Block (XYZ 1.01%) and Roku (ROKU 1.69%). The latter is the fifth-largest holding in Ark Invest's combined portfolio, while the former comes in at number 12 as of this writing. Both are down by more than 20% this year but could reward investors who get in today.
Here's what investors need to know.
Block, a fintech specialist, is looking to disrupt traditional banking. The company offers a range of services to businesses through its Square ecosystem, including payroll, inventory management, loans, credit cards, and payment processing. Block also caters to individuals through Cash App, which offers a debit card, direct deposit, stock and crypto trading, buy-now-pay-later services, and more. These core businesses have performed well for Block.
Its revenue and gross profit have generally moved in the right direction, and it has now been profitable for several consecutive quarters. However, slowing revenue growth and a volatile crypto-trading business aren't helping the company.
XYZ Revenue (Quarterly) data by YCharts
That said, Block's future seems bright. First of all, it has a large user base. Cash App ended 2024 with 57 million monthly active users, a 2% year-over-year increase. Block can grow its revenue by cross-selling existing services to its users while introducing new ones. Less than half -- about 25 million -- of Cash App's users have opted for the app's debit card, for instance.
Notably, this service and many other Block offers through Cash App are particularly popular among younger generations, indicating that as time passes, Block's ecosystem will only get stronger. That should help redirect transaction dollars from traditional banking into Block's pockets -- the company's ultimate goal. So, Block still has plenty of growth opportunities thanks to a growing user base, cross-selling, the introduction of new services, and an improving bottom line.
That's why Block's shares are worth investing in as they continue their southbound descent.
Roku is also disrupting an industry. The company is helping redefine the way we entertain ourselves in front of the television -- and other screens, for that matter. It's no secret that people are increasingly ditching cable in favor of streaming. Roku is helping facilitate the switch through its platform, which is home to most of the leading streaming services. Roku's primary business isn't to compete directly with streaming services -- it's merely to provide a platform for them to reach viewers.
The company's ecosystem has grown considerably. It now boasts nearly 90 million streaming households and facilitates well over 100 billion viewing hours annually. Naturally, Roku has become a favorite target for advertisers who follow viewers wherever they go. True, the company has encountered some issues in recent years. It is not yet consistently profitable, while key metrics, including average revenue per user, have stalled. There is a good reason for that, though.
Roku has never been hesitant to sell its namesake hardware devices at a loss because once consumers find their way into its ecosystem, it can more than make up for its less-than-profitable hardware business. Roku has become the leading connected TV company in regions like North America and Mexico through this strategy, which it is now implementing in other markets.
And just as its monetization efforts eventually ramped up in North America, they also will elsewhere. Roku's prospects look attractive, especially considering the whitespace available in the streaming market. Investors should strongly consider buying the stock while it is still down.
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