My 3 Favorite Stocks to Buy Right Now

Key Points

• Alibaba is cheap enough that it's been consistently buying back its stock over the past two years. An analyst's price target boost this week backs the bullish argument.

• Disney's organic revenue growth has been unimpressive in recent years, but it's a different story at the other end of the income statement.

• Roku is popular, proliferating, and -- as of its latest quarter -- profitable again.

• 10 stocks we like better than Alibaba Group ›

There are a lot of moving parts to the stock market. It's important to keep your investing decisions grounded. But that doesn't mean you can't have your favorites. I want to share some of mine with you.

I own shares of Alibaba (NYSE: BABA), Disney (NYSE: DIS), and Roku (NASDAQ: ROKU). The businesses vary in terms of risk and where they are in the growth cycle. Let me tell you a bit more about my three favorite stocks to buy now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

1. Alibaba

China's e-commerce pioneer keeps growing despite headwinds on its home turf and abroad. The trade war is starting to have an impact on AliExpress, its online platform that sells Asian-sourced goods around the world. However, the heart of Alibaba's business beats in China. Taobao and Tmall, its consumer-to-consumer and business-to-consumer hubs, accounted for 45% of its consolidated revenue. More importantly, they combined for 113% of Alibaba's consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

In other words, Alibaba can afford to lose money on the balance of its business outside Taobao and Tmall. Those two businesses delivered an adjusted EBITDA margin of 44%. Alibaba also has side bets on everything from food delivery to artificial intelligence.

Image source: Getty Images.

You may expect a company losing money with the noncore businesses that account for 55% of its revenue mix to be posting meager overall profitability, but that's not the case. Alibaba is generating a net margin in the double digits. The stock is trading for a reasonable 16 times trailing earnings, and the future is even more compelling. You can buy China's top dog in online retail for less than 14 times next year's adjusted earnings target.

I'm not the only one who thinks Alibaba is cheap. Barclays boosted its price target on the shares from $145 to $190 this week, encouraged by accelerating growth for its cloud business and signs of bottom-line improvement. The company itself has executed share buybacks in eight consecutive quarters. In an investing universe of richly priced consumer-facing tech companies, Alibaba is a leader trading at a bargain price.

2. Disney

Never bet against content creators, especially one as potent as Disney. The bellwether of entertainment stocks put out the three highest-grossing theatrical releases of last year, operates the world's most successful theme parks, and commands one of the largest audiences for its slate of premium online streaming services.

Disney is also cheaper than you would think for a juggernaut in its industry. It trades for 20 times what it's expected to earn for its fiscal 2025, which ends next month. Revenue growth has been slow and steady, but the bottom line should do most of the heavy lifting in the next couple of years as one-time drags on its bottom line become leaders.

3. Roku

Straying not too far from the digital ambitions at the House of Mouse, Roku offers the leading operating system for smart TVs. This may seem like a thin niche to dominate, but it's potent. Roku is the starting point for more than 80 million users averaging roughly four hours of smart TV viewing a day.

It's a free-to-use platform, but that doesn't mean Roku isn't making money from the service. It serves up ads to its captive audience. Roku also scores some coin when someone signs up for a new service through the hub. A whopping $976 million of the $1.1 billion in revenue it generated in its latest quarter came from this platform business, growing a healthy 18% over the past year. Just five years ago, it took Roku a whole year to make that kind of platform revenue. Throw in consistent free cash flow and an earlier than expected return to profitability in its latest quarter, and a strong story gets even better. What's good on streaming TV these days? Everything.

Should you invest $1,000 in Alibaba Group right now?

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Rick Munarriz has positions in Alibaba Group, Roku, and Walt Disney. The Motley Fool has positions in and recommends Roku and Walt Disney. The Motley Fool recommends Alibaba Group and Barclays Plc. The Motley Fool has a disclosure policy.