3 Monster Stocks in the Making
Finding stocks that generate life-changing returns is not that difficult to do -- they are often brands that you already know. The challenge is having the courage to step up to the plate and stick with those stocks through thick and thin, because even great stocks will experience periods of high volatility.
Stocks that go on to generate monster returns are usually the companies that are right in front of you. Three examples are Apple, Netflix, and Amazon. A $1,000 investment in each of these stocks at the beginning of 2005 would be worth a total of $287,400 today.
The interesting thing about these stocks is that Apple and Amazon were already large-cap stocks in 2005 but still climbed 1,780% and 3,850%, respectively, over the last 14 years. Monster stocks don't have to be small growers but can be found among fast-growing leaders.
With that in mind, here's why Glu Mobile (NASDAQ: GLUU), Spotify Technology (NYSE: SPOT), and Uber Technologies (NYSE: UBER) could multiply a $1,000 investment in the next few decades.
The mobile game market is exploding
After a few years of struggling to gain its footing, Glu Mobile finally took off in 2018. The mobile game company just reported its fifth consecutive quarter of improving operating income, driven by an increase in revenue of 18% year over year in the first quarter.
The stock was riding high through April but plunged from its highs after the company's first-quarter earnings results. Even though the company beat analysts' expectations, management's guidance for the second quarter was lower than expected. But the market is losing sight of the long-term upward trajectory for the company and the increasing popularity of mobile gaming.
Glu's three core games -- Design Home, Covet Fashion, and Tap Sports Baseball -- grew adjusted revenue a combined 30% year over year last quarter, and the company has three promising games releasing in the coming months -- WWE Universe, Diner DASH Adventures, and Disney Sorcerer's Area -- which management believes will keep the company squarely in growth mode.
Investors can buy a share of Glu Mobile for a forward P/E of 20 times this year's earnings estimates. That's not a bad deal for a company that is seeing growing revenue and free cash flow and is serving a $63 billion mobile-game market that is growing at a double-digit rate.
Easy tunes
Spotify is a powerhouse in the growing music streaming market, with 217 million monthly active users and 100 million subscribers around the world. The stock is up only 8% since its IPO last year, as concerns about profitability and competition weigh on the shares. But I believe these concerns are overblown.
Apple Music reportedly surpassed Spotify in subscribers in North America in recent months, but that didn't stop Spotify from growing subscribers by an impressive 32% year over year in the first quarter. That growth in the face of competition reveals how massive the long-term growth opportunity is for the company.
Spotify is already a well-known brand in the music streaming market, but the company has lofty ambitions to be much more than your favorite playlist. The company wants to become the world's largest audio platform, which is why Spotify recently acquired three "best-in-class" podcast companies to expand its reach. The company also continues to penetrate underserved markets around the world, including India, where it has 2 million users after launching earlier this year.
The company is reinvesting all of its gross profit to drive growth, which makes the stock difficult to value. But with the company targeting more than 1 billion listeners over the long term, Spotify could be a monster stock in the making.
Dominating local transportation
The ridesharing leader just had its IPO a few months ago and currently has a market value of $75 billion. It might not seem like the stock can move higher based on that rich price tag, but we have to consider how fast the company is growing and the opportunities it still has to expand its addressable market.
First up, Uber has experienced explosive growth. In the first quarter, Uber reported growth in gross bookings of 34% year over year to reach $14.6 billion. Total revenue increased exponentially over the last five years from $495 million to $11.3 billion in 2018. While growth has slowed recently, analysts expect Uber to post top-line growth of more than 20% through 2020.
The company may be able to grow for a very long time. Uber says it has less than 1% penetration in the 63 countries where it operates. While it continues to work on increasing that penetration, other services like Uber Eats and Uber Freight reveal management's strategy to become a "one-stop shop for local transportation and commerce."
Investors shouldn't buy the stock hoping to hit a home run in the next few years; this one will certainly require more patience than the average growth stock. For one, Uber has consistently reported more than $1 billion in loss on the bottom line every year, and management doesn't expect to report a profit anytime soon but to invest aggressively for the future, which is full of opportunities.
While ridesharing comprises most of the company's revenue, Uber is much more than that. In addition to Uber Eats and Freight, the company is currently working on a digital wallet service in partnership with PayPal.
When the company defines itself as a one-stop shop, there's no telling how far Uber will grow as it builds out a platform of services that complement one another. Because Wall Street likes to bet on stocks with a clear path to profitable growth, I believe market participants could be underestimating Uber's long-term value.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon, PayPal Holdings, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, PayPal Holdings, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.