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3 Top Stocks to Buy in May

After a rough first quarter of the year, investors are hoping May can bring better results. The first five trading days of May were very volatile but the S&P 500 ended the week down only 0.21%. Many companies reported earnings recently, offering investors a fresh update on how the businesses are operating.
Here are three companies that reported earnings in the past few weeks and posted strong results despite their recent stock performances. Let’s take a closer look at why these stocks are top picks to buy in May.
Image source: Getty Images.

Roku
Most consumers know Roku (NASDAQ: ROKU) as one of the leading hardware choices for streaming TV and movies. Investors should know that Roku’s business plan is built around being the go-to platform for content consumers, creators, and advertisers. First-quarter 2021 revenue grew 28% year over year and gross profit increased 12%. However, the more important metrics to keep an eye on are the three key operating metrics Roku uses to evaluate its own success. 
In Q1 of 2022, Roku’s active accounts grew 14% year over year, streaming hours increased by 14%, and average revenue per user (ARPU) grew 34%. Each of these metrics are important to monitor as they tell investors how successful the company is at growing its users and their streaming hours so they can be monetized. The growth in active accounts and streaming hours has been slowing over the past several quarters, which is something to keep an eye on. On the other hand, ARPU remains higher than it was pre-pandemic, showing Roku’s ability to monetize users at a higher rate than it is growing new accounts. 
There is still some uncertainty about whether Roku can be the winner in a crowded space. Not only does Roku compete with other streaming devices for users, the company is also fighting for market share of streaming advertising. However, some of that risk has been mitigated by the stock’s fall over the past year. With shares trading for only 3.5 times forward sales, now may be a good time to consider buying shares if you think Roku can be the winner in this space.
Apple
Consumer electronics giant Apple (NASDAQ: AAPL) reported Q2 2022 earnings on April 28 and continued to demonstrate its dominance in the tech retail space. Apple saw year-over-year growth in all of its product categories other than iPad, and grew overall revenue 9% over the previous year’s quarter. 
Apple saw the strongest revenue growth in its services segment, which is comprised of subscription-based products such as AppleCare, iCloud storage, Apple Arcade, and other services. In Q1, services represented 20% of Apple’s overall revenue, up from 18.8% in Q2 of 2021. This is significant because the services revenue has a much higher gross margin profile and helped Apple’s overall gross margin increase to 43.7% for the quarter, as compared to 42.5% in Q2 of 2021. 
Apple also continues to generate cash and use it to reward shareholders. Operating cash flow for Q2 was $28 billion and the company repurchased $23 billion of its own shares. Over the past five years Apple has reduced its share count by 21%. 
Apple has shown no signs of slowing down, and yet has been caught up in the overall market sell-off. Apple is beating the S&P 500 by more than 20% over the past year and yet currently trades at a price-to-earnings (P/E) multiple of 25.5, only slightly above the S&P 500’s P/E of 24.1. This presents an attractive buying opportunity for investors who see Apple’s strong performance continuing.
Airbnb
Posting even stronger results recently was Airbnb (NASDAQ: ABNB), which reported Q1 2022 earnings last week. Revenue for the quarter increased 70% year over year and the company’s net loss of $19 million was a vast improvement over Q1 of 2021 when the loss was $1.2 billion. The company also produced free cash flow of $1.2 billion for the quarter, which was an all-time high.
Airbnb also reported that its guests are booking more nights and are staying for longer amounts of time. Nights and experiences booked jumped 59% year over year, and stays of 28 days or more remain Airbnb’s fastest-growing category of trip length. This shows that as more people are traveling, they’re continuing to choose to stay in Airbnbs. 
Airbnb ended the quarter with over $9 billion in cash, cash equivalents, and marketable securities on the balance sheet, giving the company plenty of cash to pour back into the business as it continues to scale, innovate, and grow market share. It will be interesting to see if management announces any uses for this cash when it hosts an event on May 11 where the company plans to share what it’s calling the biggest change to Airbnb in a decade. 
Regardless, Airbnb continues to maintain its strong position even as its stock price falls with the wider market. Airbnb shows no signs of slowing down and shares look attractive at only 13 times sales, the cheapest they’ve ever been.
Jeff Santoro has positions in Airbnb, Inc., Apple, and Roku. The Motley Fool has positions in and recommends Airbnb, Inc., Apple, and Roku. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. –

After a rough first quarter of the year, investors are hoping May can bring better results. The first five trading days of May were very volatile but the S&P 500 ended the week down only 0.21%. Many companies reported earnings recently, offering investors a fresh update on how the businesses are operating.

Here are three companies that reported earnings in the past few weeks and posted strong results despite their recent stock performances. Let’s take a closer look at why these stocks are top picks to buy in May.

Image source: Getty Images.

Roku

Most consumers know Roku (NASDAQ: ROKU) as one of the leading hardware choices for streaming TV and movies. Investors should know that Roku’s business plan is built around being the go-to platform for content consumers, creators, and advertisers. First-quarter 2021 revenue grew 28% year over year and gross profit increased 12%. However, the more important metrics to keep an eye on are the three key operating metrics Roku uses to evaluate its own success. 

In Q1 of 2022, Roku’s active accounts grew 14% year over year, streaming hours increased by 14%, and average revenue per user (ARPU) grew 34%. Each of these metrics are important to monitor as they tell investors how successful the company is at growing its users and their streaming hours so they can be monetized. The growth in active accounts and streaming hours has been slowing over the past several quarters, which is something to keep an eye on. On the other hand, ARPU remains higher than it was pre-pandemic, showing Roku’s ability to monetize users at a higher rate than it is growing new accounts. 

There is still some uncertainty about whether Roku can be the winner in a crowded space. Not only does Roku compete with other streaming devices for users, the company is also fighting for market share of streaming advertising. However, some of that risk has been mitigated by the stock’s fall over the past year. With shares trading for only 3.5 times forward sales, now may be a good time to consider buying shares if you think Roku can be the winner in this space.

Apple

Consumer electronics giant Apple (NASDAQ: AAPL) reported Q2 2022 earnings on April 28 and continued to demonstrate its dominance in the tech retail space. Apple saw year-over-year growth in all of its product categories other than iPad, and grew overall revenue 9% over the previous year’s quarter. 

Apple saw the strongest revenue growth in its services segment, which is comprised of subscription-based products such as AppleCare, iCloud storage, Apple Arcade, and other services. In Q1, services represented 20% of Apple’s overall revenue, up from 18.8% in Q2 of 2021. This is significant because the services revenue has a much higher gross margin profile and helped Apple’s overall gross margin increase to 43.7% for the quarter, as compared to 42.5% in Q2 of 2021. 

Apple also continues to generate cash and use it to reward shareholders. Operating cash flow for Q2 was $28 billion and the company repurchased $23 billion of its own shares. Over the past five years Apple has reduced its share count by 21%. 

Apple has shown no signs of slowing down, and yet has been caught up in the overall market sell-off. Apple is beating the S&P 500 by more than 20% over the past year and yet currently trades at a price-to-earnings (P/E) multiple of 25.5, only slightly above the S&P 500’s P/E of 24.1. This presents an attractive buying opportunity for investors who see Apple’s strong performance continuing.

Airbnb

Posting even stronger results recently was Airbnb (NASDAQ: ABNB), which reported Q1 2022 earnings last week. Revenue for the quarter increased 70% year over year and the company’s net loss of $19 million was a vast improvement over Q1 of 2021 when the loss was $1.2 billion. The company also produced free cash flow of $1.2 billion for the quarter, which was an all-time high.

Airbnb also reported that its guests are booking more nights and are staying for longer amounts of time. Nights and experiences booked jumped 59% year over year, and stays of 28 days or more remain Airbnb’s fastest-growing category of trip length. This shows that as more people are traveling, they’re continuing to choose to stay in Airbnbs. 

Airbnb ended the quarter with over $9 billion in cash, cash equivalents, and marketable securities on the balance sheet, giving the company plenty of cash to pour back into the business as it continues to scale, innovate, and grow market share. It will be interesting to see if management announces any uses for this cash when it hosts an event on May 11 where the company plans to share what it’s calling the biggest change to Airbnb in a decade. 

Regardless, Airbnb continues to maintain its strong position even as its stock price falls with the wider market. Airbnb shows no signs of slowing down and shares look attractive at only 13 times sales, the cheapest they’ve ever been.

Jeff Santoro has positions in Airbnb, Inc., Apple, and Roku. The Motley Fool has positions in and recommends Airbnb, Inc., Apple, and Roku. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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