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If you feel the pain of missing GameStop incredible increase in stock, don’t get hung up on it. There are many great investment opportunities out there, and you don’t have to expose yourself to the risk of pursuing a short-lived fad that will likely end up being a short-lived game.
With that in mind, we asked three Motley Fool contributors to highlight a company that has the potential to generate stellar returns. Read on to see why they identified Glu Mobile (NASDAQ: GLUU), Match group (NASDAQ: MTCH), and Materials applied (NASDAQ: AMAT) like stocks that are about to crush the market.
Image source: Getty Images.
This small cap stock could be a huge winner
Keith Noonan (Glu Mobile): If you’re looking for exposure to the video game industry, or just stocks that have the potential to deliver exceptional performance, Glu Mobile stands out as one of my top picks. The publisher has a market cap of around $ 1.6 billion and is trading at around 17.5 times expected earnings this year and 2.6 times expected sales. It appears to be priced very low in this range, and even moderate future success might be enough to send the stock significantly higher.
Glu has a collection of video game franchises that cater primarily to casual video game players. These properties include lifestyle genre entries such as Design house and Coveted fashion, licensed celebrity game Kim Kardashian: Hollywoodand sports franchise MLB Tap Sports Baseball. While these games are all free to play, Glu makes money by enticing players to spend on in-game items and currency. The game creator is also extending the lifespan of its titles with regular content updates. .
Management expects that the mere release of content updates for its current line of games will be enough to increase bookings by 8% to 10% this year. These prospects suggest the company is enjoying impressive longevity for its core franchises, and Glu also plans to launch four new intellectual properties this year. If even one of these new games continues to be a hit, expect Glu’s valuation to skyrocket.
Best of all, a relatively robust base lineup and the robust performance potential of upcoming games aren’t the only reasons to love Glu. The company has a strong cash position and seeks acquisition targets that can accelerate its growth. It is also ahead of the curve with its drive to bring global e-commerce stores into video games. Glu is far from the flashiest name in the video game industry, but it has multiple big earning possibilities, and the title continues to be priced low.
The love connection
Joe tenebruso (Match Group): People are social creatures and the coronavirus pandemic has kept us apart for far too long. Fortunately, thanks to promising vaccines from Modern, Pfizer, and maybe Johnson & johnson, we may soon be approaching the end of the COVID-19 crisis.
All of this bodes well for Match Group. The leading dating app provider is expected to see renewed demand for its wide range of relationship building products, available in 40 languages in countries around the world. Its crown jewel is Tinder, the world’s most downloaded and profitable dating app.
Already more than 10 million people subscribe to Match Group products. That number has grown steadily in recent years, fueled by the scorching growth of Tinder, and it is likely to rise even more as the health crisis eases.
In addition, Match Group’s recurring revenue based on subscriptions and strong cash flow generation puts the company on a solid financial footing, reducing risk to investors. In the first three quarters of 2020, Match Group revenue grew nearly 16% to $ 1.7 billion. Its cash flow from operations and free cash flow increased 11% to $ 519 million and $ 486 million, respectively.
Management expects the growth of the company to accelerate in the coming quarters, with revenues rising 19% to $ 650 million in the fourth quarter. This love-filled growth story looks set to enjoy a post-pandemic boom, now is a great time to recover stocks.
Applied Materials shoots all cylinders
Jamal Carnette (Applied materials): Instead of a bankrupt video game retailer, how about investing in a company that helps move the world into the next generation of technology? The Internet of Things, 5G connectivity, and artificial intelligence all need chips, and Applied Materials provides the essential support and equipment chipmakers need to keep producing silicon. Stocks might not be triple digits in 2021 like many of these buzz names, but a 70% one-year return is no laughing matter.
Applied Materials shares have continued to rally since the company recorded a high and low beat for the fourth quarter. The company’s larger, more profitable semiconductor systems division (66% of total sales) increased net sales 33% year-over-year, pushing its closely watched gross margin to 1.9 percentage point and its free cash flow up 58% over the previous year.
Look for Applied to continue to outperform in 2021 as management has been bullish on many fronts. First, the company guided for first-quarter revenue at $ 4.95 billion midway through, significantly higher than consensus estimates. It is possible that this is still too light as the fourth quarter was affected by a licensing requirement imposed by the government on a foundry customer in China which appears to be close to being settled. Finally, the company’s backlog set a year-end record, indicating a significant supply in 2021. If you look beyond trending inventory and focus on the future, you’ll see Applied Materials has a growth path in 2021 and beyond.
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