5 Best Stocks to Buy in 2021 According to Cathie Wood

4. Roku, Inc. (NASDAQ: ROKU)

Number of Hedge Fund Holders: 60    

Roku, Inc. (NASDAQ: ROKU) is a California-based company that operates a streaming platform. It was founded in 2002 and is placed fourth on our list of 10 best stocks to buy in 2021 according to Cathie Wood. Roku stock has returned more than 209% to investors in the past year. The investment company chaired by Wood owns close to 5 million shares in the streaming firm worth over $1.6 billion. This investment represents more than 3.2% of the investment portfolio of the fund. 

On May 7, Roku, Inc. (NASDAQ: ROKU) stock jumped close to 13% as the firm posted strong earrings results. Investment advisory Berenberg was bullish on Roku stock after the earnings results, assigning it a price target of $439, implying 37% upside potential.

At the end of the fourth quarter of 2020, 60 hedge funds in the database of Insider Monkey held stakes worth $3.2 billion in Roku, Inc. (NASDAQ: ROKU), up from 59 in the preceding quarter worth $1 billion.

In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Roku, Inc. (NASDAQ: ROKU) was one of them. Here is what the fund said:

“For two years running, Roku has now been either the largest or second largest driver of performance in portfolios. When we purchased Roku, obviously we never expected such a phenomenal outcome, so quickly—these things can only be chalked up to luck. However, we do think luck is the residue of design and Roku had all the hallmarks ex ante as the kind of position that could do something wildly spectacular. One of the first signs in seeing Roku’s potential was the sharp contrast between our modeled expectations for the top line of the business and where the consensus expectations were. This was the Shopify setup all over again. By this time, we had added an additional tool to our analytical framework, and this helped further enforce our conviction that not only was it we who were right about where things should go, but also that the very existence of this gap could be a potent source of fuel behind the stock as the world came around to our expectation. Specifically, we had become increasingly comfortable building lifetime value analyses of companies, and notably, when we bought Roku, we were quite confident that with only modest annual increases in average revenue per user (ARPU), and a 5-year average customer lifespan, we were buying the company for its existing customer base and nothing more. In other words, the growth at Roku was entirely free at the prevailing prices we bought into.”