Stocks to buy
  • Roku (ROKU) surpassed Tesla (TSLA) as the top holding of ARK Innovation ETF.
  • This could be Cathie Wood’s next big call.
  • Consider picking up ROKU stock, as it’s set to win the streaming wars.
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Like most high-growth picks in this market environment, Roku (NASDAQ:ROKU) investors have suffered much. ROKU stock started its decline around July of last year after it hit a high of a whopping $490 per share. It’s been on a downtrend since then, crushing investors’ hopes and dreams.

I guess ROKU stock can be a cautionary tale of trying to catch a falling knife — and I say this as a big fan of the company. Between now and April, its stock actually declined from $137 to $94. Had you invested at or near April’s peak price, you would have seen 30% of your investment value wiped out in a flash.

The continued decline is, of course, due to the tough market environment which has dominated the headlines recently. At the risk of looking foolish, I lay out why ROKU stock remains a compelling investment.

Roku as the True Winner of Streaming Wars

There is little doubt now that streaming is the future of TV entertainment. There remain a small handful of reasons to still subscribe to cable. But these reasons are dwindling quickly in the wake of aggressive moves by entertainment industry players.

Data from Roku’s most recent shareholder letter show that cable TV is basically on its dying breath. TV streaming devices surpassed legacy pay-TV devices, including Set-Top-Box and DVR, in weekly reach for the first time in the U.S. According to Nielsen data gathered by the company, in March, 65% of adults aged 18 to 49 used streaming TV compared to 63% who use legacy TV.

Entertainment industry players know this, hence the massive investments in content for streaming by the major players. The industry is poised to spend about $140 billion on content alone in 2022.

While the major players up their content game, as an aggregator, Roku has an advantage. More content means more viewers. Assuming that translates to paying subscribers, Roku is in a prime position to actually manage all of those subscriptions in a single place.

Cathie Wood Makes a Big Bet on ROKU Stock

In a sign of confidence, famed technology investor Cathie Wood has made a significant commitment to ROKU stock. In fact, Roku recently surpassed Tesla (NASDAQ:TSLA) as the ARK Innovation ETF’s top holding. Its Roku stake is worth about $716.5 million, which is a decent chunk of change.

The movement of TSLA stock from the top holding to second place was mostly driven by the selling of its shares and not a decline in stock price. Wood has been actively selling TSLA stock during the past year. At the end of March, the fund trimmed its position of 5.8 million TSLA stock shares to about 1.6 million.

Now, a lot of people like to dunk on Cathie Wood, as high-growth investing has fallen out of vogue. However, remember that years ago, Wood was laughed out of the room when she said TSLA stock would hit $4,000. It reached this level and more on a split-adjusted basis. Could Roku be her next big call?

The factors are there. Roku is poised to emerge as the winner of the streaming market. With cable TV dying very soon, it could become the dominant platform on the market. Therefore, investors should keep an eye out for ROKU stock.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.

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