Best Stocks to Buy Right Now: Disney vs. Roku

The media landscape is undergoing a major transformation. This is due to the rise of streaming entertainment, a new way to consume content that is causing households to cut the cord and ditch their cable subscriptions.

Here are two companies seeking success in this space: The Walt Disney Company (disrespect -0.63%) and year (year -0.34%). The former is a global entertainment powerhouse, and its stock is down 51% from its all-time high. The latter is a streaming platform, and its stock is down 87% from its all-time high.

Which of these crashing stocks are good to buy right now?

For Roku

Despite Macroeconomics Despite the headwinds, Roku continues to see healthy growth. In the first quarter of 2024 (ended March 31), revenue grew 19% year over year, and its active account base grew 14% to 81.6 million. Engagement remains strong, with consumers streaming a whopping 30.8 billion hours of content on Roku in the past three months.

The company is well positioned to benefit from the streaming secular trend. The company aims to be an independent platform that is compatible with all streaming services. For viewers, Roku consolidates all of its content choices into one simple user interface. Disney or NetflixRoku offers wide distribution.

And for advertisers looking to target connected TV viewers, Roku offers a technology platform to do so. In fact, the business has the largest market share in the U.S., Canada, and Mexico when it comes to smart TV operating systems. As advertising dollars shift to streaming, Roku stands to benefit.

The stock has fallen so much that it is trading at an attractive valuation. Investors can scoop up the stock at a price like this: Price to Sales Ratio (P/S) 2.4. That’s a whopping 75% discount to the historical average of 9.7. For long-term investors looking to gain exposure to the streaming market, Roku could be a great candidate.

In the case of Disney

Disney is clearly in a tough spot. Its linear cable channels, especially ABC and ESPN, are still profitable. But they are in long-term decline as households cancel their cable TV subscriptions. According to eMarketer, half of all U.S. households will still have a cable package in 2022, and that number is expected to drop to 35% by 2027.

CEO Bob Iger and his team are trying to position the business for the future of streaming. The company’s combined streaming services (Disney+, Hotstar, Hulu, and ESPN+) have 228.6 million paid subscribers. Disney+ core (excluding Hotstar) alone has 117.6 million subscribers. That’s enough to make it one of the leading streaming services in the market.

As the company expands its streaming service with technology and content investments, operating losses are so high that management is cutting costs to secure profitability. In the second quarter of fiscal 2024 (ended March 30), Disney’s direct-to-consumer division generated $47 million in operating income, which is expected to be the start of a surge in profits going forward.

Intellectual Property Rights (IP) gives Disney a unique advantage in the entertainment industry because Disney’s characters and storylines cannot be replicated. I am convinced that this business can replace its success in cable TV with success in the streaming world. Plus, Disney has a thriving theme park business that can continue to grow its revenues over the long term.

Last word

There are compelling reasons to buy both Roku and Disney stocks. If investors want to gain exposure to the media sector more broadly, and the streaming industry in particular, there’s no reason why both companies can’t be owned.

But if I had to pick one better investment over the next five years, I would pick Disney. I think Disney’s IP creates an economic entrenchment that is hard to beat in the entertainment industry, and that gives me confidence that this business will last a long time. Plus, Disney has multiple distribution channels to monetize their IP.

Disney is a better stock to buy and hold.