The metaverse has become a hot topic since Facebook changed its name to Meta Platforms. But where should I look for potential big winners? In this piece I want to share details of three metaverse stocks I’d buy today.
#1: essential services
My first pick is Keywords Studios (LSE: KWS). This Dublin-based firm provides a wide range of specialist services to the video games industry. These include audio service, graphic design, player community management and much more. I see these as major growth sectors as we spend more of our lives online.
Keywords has been expanding rapidly in recent years by combining acquisitions with in-house growth. This can be a difficult strategy to do well, as there’s a lot to go wrong. Any disappointments could see Keywords’ shares slump — but results so far have been impressive.
Keywords Studios’ sales and profits have risen by an average of 45% per year since 2015. Broker forecasts suggest this pace could slow in 2022, but the company’s new chief executive has already said he expects results this year to be “at the upper end” of current forecasts. I think a further upgrade is possible.
This stock isn’t cheap, which is a risk, but I would buy Keywords Studios for my portfolio as a long-term play on metaverse growth.
#2: a metaverse security stock
Cyber crime is already a huge risk for anyone (or any company) that is active online. In my opinion, these risks are only going to get bigger as the metaverse evolves. Anti-virus protection won’t be enough. Businesses will need a much broader range of security-related services.
One company that already operates in this area is NCC (LSE: NCC). This £680m, Manchester-based business provides a full range of security and “risk mitigation” services for businesses. These include security assessments, training, incident response and compliance certification. The big risk facing NCC, of course, is that it could fall victim to cyber crime itself. I’d imagine this might destroy its reputation as a trusted advisor.
The NCC share price has pulled back since the start of this year, in line with the wider tech slump and many of the risks affecting tech stocks are the same for NCC. I reckon this could be a buying opportunity. NCC shares now trade on 18 times forecast earnings, with a 2.1% dividend yield. That doesn’t seem expensive to me, for a business that’s expected to deliver earnings growth of around 15% for the current year. I’d consider buying at this level.
#3: superfast networks
One area where the metaverse is expected to drive growth is virtual and augmented reality. Delivering this kind of service needs fast and reliable networks. That’s where my final pick comes in.
Calnex Solutions (LSE: CLX) specialises in “test and measurement solutions for the global telecommunications sector”. It’s a recent addition to the UK market that’s impressed me considerably so far, with a track record of growth, 20% profit margins and owner-management.
One risk for shareholders is that Calnex only listed on the stock market 15 months ago. I think there’s some risk of a slowdown after sales rose by 20% last year. However, long term I don’t think this should matter.
Founder Tommy Cook expects cloud computing and 5G mobile to create new opportunities. I agree. I’d be happy buying a few Calnex shares today to tuck away for the next decade.
