The S&P 500 (SNPINDEX: ^GSPC) is up 10.6% year to date, but history says the benchmark index could move even higher in the months ahead. During the last decade, the S&P 500 returned an average of 1% in June, 3.1% in July, and 0.3% in August, which comes to a total gain of 4.4% through the summer.

Of course, past performance does not guarantee future returns, so similar results this summer are not a sure thing. But the stock market will undoubtedly move much higher eventually. The S&P 500 gained 10.1% annually during the last two decades, a broad enough period that similar results are likely in the long run.

In that context, investors should feel confident about putting money into the market on a consistent basis. Here’s why Datadog (NASDAQ: DDOG) and Roku (NASDAQ: ROKU) are my picks for the best growth stocks to buy in June.

Datadog: A leader in observability software

Datadog reported strong results in the first quarter, including a sequential acceleration in top-line growth. Its customer count increased by 10% to 28,000, and the average spend per existing customer increased by more than 10%. In turn, revenue rose 27% to $611 million, and non-GAAP (non-generally accepted accounting principles) net income jumped 91% to $0.44 per diluted share.

The bull case for Datadog centers on the growing need for observability software and the breadth of its platform. Cloud computing, artificial intelligence (AI), and other digital transformation projects are making IT environments more complex, creating a need for observability (also called performance monitoring) software. Datadog addresses multiple relevant markets by integrating more than 20 observability and security products on a single platform.

That strategy resonates in the current economic climate because many businesses are pursuing vendor consolidation. In other words, they want to replace patchworks of point products from different vendors with integrated software from a single vendor. In doing so, they hope to improve operational efficiency simply because maintaining fewer disparate products is generally less complicated (and less costly).

Datadog makes vendor consolidation possible, and the company has garnered praise from industry analysts in several product categories. Most notably, Datadog is a leader in application performance monitoring (APM) and artificial intelligence for IT operations, and the company has a strong presence in both cloud infrastructure monitoring and database monitoring.

Going forward, Wall Street expects Datadog to grow revenue at 25% annually through 2026, a reasonable estimate, given that the APM and cloud monitoring markets are projected to expand at annual rates of 15% and 21%, respectively, through 2030. In that context, Datadog’s current valuation of 17.9 times sales appears reasonable.

As a caveat, I see Datadog as a worthwhile investment at its current valuation, so I selected it as one of my best ideas for June. That does not mean the stock will be worth more by July. Instead, I expect Datadog to beat the S&P 500 over the next three to five years.

Roku: The most popular streaming platform in the U.S.

Roku reported encouraging results in the first quarter. Revenue increased 19% to $755 million, an acceleration from 11% growth last quarter and 1% growth last year. The company also reported positive non-GAAP earnings before interest, taxes, depreciation, and amortization (EBITDA) of $41 million, up from a loss of $69 million in the prior year.

The bull case for Roku centers on its ability to engage consumers. The company operates the most popular streaming platform in the U.S. as measured by viewing time. Additionally, Roku OS is the top-selling smart TV operating system in the U.S. and Mexico. That brand authority should help the company retain its streaming leadership, making Roku a major beneficiary as connected TV (CTV) ad spending increases.

To elaborate, U.S. consumers spent 38% of TV viewing time on streaming services in April 2024, but CTV advertising will account for just 32% of total TV advertising this year. That gap is bound to close eventually. Indeed, according to eMarketer, CTV ad spending is forecasted to increase by 13% annually through 2027, while traditional TV ad spending declines.

Roku has another tailwind behind its business. The Roku Channel — its ad-supported streaming service — accounted for a record 1.4% of TV viewing time in April. That tops Paramount Global‘s Paramount+ (1%), Warner Bros. Discovery‘s Max (1.2%), and Comcast‘s Peacock (1.3%). The growing popularity of The Roku Channel could bring more advertising dollars to the platform, helping Roku gain market share.

Going forward, Wall Street expects Roku to grow sales at 12% annually through 2026. The company could certainly beat that estimate if it gains market share in CTV advertising. However, even if Wall Street is correct, Roku’s current valuation of 2.2 times sales looks quite reasonable, especially when the three-year average is 3 times sales.

Similar to my caveat about Datadog, I see Roku as a worthwhile investment in June. That does not mean Roku will be worth more by July, but rather that I believe it will beat the market over the next three to five years.

Should you invest $1,000 in Datadog right now?

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Trevor Jennewine has positions in Roku. The Motley Fool has positions in and recommends Datadog, Roku, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

The S&P 500 Could Soar This Summer: My Picks for the 2 Best Growth Stocks to Buy in June was originally published by The Motley Fool

Source: finance.yahoo.com