04/05/2022
The Best Metaverse Stocks to Consider Buying Now
My first round of large-cap metaverse play stock picks outperformed the market; here's round two.
There's a lot of excitement surrounding the growth potential of the metaverse. The current concept of this word is still evolving, so don't concern yourself if it's fuzzy to you.
le terms the metaverse can be thought of as a melding of the physical and virtual worlds. For investors, what's key to keep in mind is that the metaverse has the potential to be the next evolution of the internet. It seems on track to not only expand upon experiences now possible on the internet but also enable many new applications -- some of which nobody can even imagine yet. This is the nature of disruptive technology.
Last December, I wrote an article about the top 10 metaverse stocks in the world's first metaverse ETF. That article highlighted the basics of the Roundhill Ball Metaverse ETF ( METV 1.84% ), listed the fund's top 10 holdings, and included what I viewed as the best stocks in the top 10 group and the ones to avoid.
This article reviews where things stand with this ETF (which began trading on June 30, 2021) and my stock picks and pans at the one-quarter mark (one week after the one-quarter mark, to be exact). It also includes my current picks and pans.
The word "Metaverse" in front of digital globe of the world.
Image source: Getty Images.
Roundhill Ball Metaverse ETF: Top 10 stock holdings as of original article
The below chart includes the top 10 holdings of the Roundhill Ball Metaverse ETF as of my original article on this topic, published on Dec. 17, 2021. These holdings are listed in order of the best to the worst performers from that date through March 25, 2022. For context, the performance of the ETF itself is shown along with the performance of the Nasdaq Composite, which is the best benchmark index for this article's purpose since it's heavily composed of stocks in the technology realm.
The stock market has struggled during the period shown in the chart. The market's decline started late last year largely because of expectations that the Federal Reserve was poised to begin raising interest rates in early 2022 and continue doing so throughout the year in order to help control inflationary pressures. (The first rate hike -- for 0.25% -- occurred earlier this month.) Tech growth stocks and other interest-rate-sensitive stocks have generally been hit the hardest over this period. And then in late February, a new reason for market volatility occurred: Russia's invasion of Ukraine.
Company
The ETF's Holding No. on Dec. 17, 2021/Current Holding No.
Market Cap
Wall Street's Projected Annualized EPS Growth Over Next Five Years
Return From Dec. 17, 2021 to March 25, 2022
Apple ( AAPL 0.50% )
6/9
$2.9 trillion
14.9%
2.2%
Nvidia ( NVDA 1.90% )
1/1
$695 billion
30.7%
(0.4%)
Amazon.com ( AMZN 2.56% )
7/8
$1.7 trillion
34.8%
(3.1%)
Microsoft ( MSFT 2.31% )
3/5
$2.3 trillion
17.4%
(6%)
Nasdaq Composite
N/A
N/A
N/A
(6.4%)
Qualcomm
9/11
$178 billion
14.7%
(10.3%)
Tencent Holdings ( TCEHY 3.81% )
10/15
$439 billion
2.3%
(16.5%)
Roundhill Ball Metaverse ETF
N/A
$762 million*
N/A
(19.8%)
Autodesk
8/10
$46.1 billion
26.7%
(23.6%)
Unity Software
5/4
$27.6 billion
N/A
(32.1%)
Meta Platforms ( FB 0.80% )
4/3
$604 billion
18.5%
(33.6%)
Roblox
2/2
$27.7 billion
N/A
(54%)
Data sources: Roundhill Ball Metaverse ETF, Yahoo! Finance, author's original article on this topic. EPS = earnings per share. *Assets under management. All data except first part of column 2 (ranking) as of March 25, 2022.
Here are some key updates investors should know about the Roundhill Ball Metaverse ETF, an index fund that's rebalanced quarterly:
Ticker symbol change: On Jan. 31, this ETF's ticker symbol changed to METV from META. The company didn't comment on the reason for the change, but it seems safe to assume it was made to avoid confusion with Meta Platforms. In October, the company formerly called Facebook announced its name change to reflect its focus on the metaverse.
Number of holdings: The fund now has 44 stock holdings, up from 40 in my first article.
Expense ratio: The expense ratio is now 0.59%, down from 0.75%. This decline is small, but small decreases can make notable differences over long periods.
As the chart shows, Qualcomm and Tencent Holdings are no longer in the fund's top 10 holdings. They are now its 11th- and 15th-largest holdings, respectively. So which two stocks have moved into the top 10? Social media company Snap (No. 6) and Sea Limited (No. 7), a Singapore-based digital entertainment and e-commerce company in which Chinese tech giant Tencent Holdings owns a sizable stake.
How did my first round of picks and pans do?
One quarter is a brief period, so it's early in the game from a long-term investing standpoint. That said, I got off to a good start with this initiative. Here's the first part of my conclusion from the original article:
The Roundhill Ball Metaverse ETF looks like a solid way for investors to get exposure to the metaverse. The drawback of ETFs is the same as their advantage: diversification. Indeed, investors willing to do some work and select individual stocks should have a decent shot at outperforming this fund.
As to the last sentence, six of the ETF's top 10 holdings at the time of my first article performed better than the ETF over the period noted in the chart. And four performed better than the Nasdaq Composite. Here is the second part of my conclusion from the original article:
If you're looking for a larger company that's profitable, it's probably hard to go wrong with Nvidia, Microsoft, Amazon, or Apple. Meta Platforms (the former Facebook) isn't as good a bet. It has higher regulatory risk than the other big U.S.-based tech companies, in my view. Moreover, it has nearly all its (revenue) eggs in one basket because it generates almost all of its revenue from digital advertising.
Risk-averse investors should steer clear of Tencent Holdings because it's headquartered in China. The Chinese government has been cracking down on tech companies, making their regulatory risk high.
The four stocks I called out as "hard to go wrong with" -- Nvidia, Microsoft, Amazon, and Apple -- were the only four of the original top 10 that outperformed the Nasdaq Composite, as well as the ETF. Apple and Nvidia held up particularly well during this challenging period.
I was right about Meta Platforms stock being not as good a bet back in December, as it lost one-third of its value in just over one quarter. My advice to steer clear of Tencent also proved good, as the stock declined 16.5% over a period in which the Nasdaq Composite fell "only" 6.4%.
Collapse
undefined Stock Quote
NASDAQ: NVDA
NVIDIA Corporation
Today's Change
(1.90%) 5,27 $
Current Price
282,19 $
1W
1M
3M
1Y
5Y
MAX
Price
Vs S&P
KEY DATA POINTS
Market Cap
$707B
Day's Range
272,06 $ - 282,50 $
52wk Range
127,00 $ - 346,47 $
Volume
114,423
Avg Vol
53,450,285
P/E (ttm)
72.23
Letting my four "big tech" stock picks ride -- and one key thing Nvidia investors should watch
Given that the Motley Fool is focused on the long term, it shouldn't come as a surprise that I'm letting my picks ride here. In other words, at this stage, most tech growth stock investors should still favor Nvidia, Apple, Amazon, and Microsoft, in my opinion.
My favorite of the group remains Nvidia -- my largest personal stock holding. "Nvidia is a 'pick-and-shovel' play on the metaverse. That is, the computer gaming and tech giant provides the tools other companies need to create their own metaverses," as I wrote in my December article. Its Omniverse platform brings together the graphics chip specialist's expertise in artificial intelligence (AI), simulation, graphics, and computing infrastructure.
Investors in Nvidia should be watching one big happening on the near-term horizon: chipmaking goliath Intel's ( INTC -0.62% ) long-awaited entrance into Nvidia's turf, discrete graphics processing units (GPU) for gamers and creators. Advanced Micro Devices, or AMD, is currently the No. 2 player (behind Nvidia) in the discrete GPU market. The first of Intel's Arc-branded graphics cards for consumers could be launching as soon as this Wednesday, March 30, as the company has an online reveal event planned for this date at 11 a.m. ET.
One important note for Amazon, too: The e-commerce titan is scheduled to split its stock 20 for 1 on June 6. Investors who hold the stock at the close of the market on May 27 will receive 19 shares for every one share they own.
What about Meta Platforms and Tencent Holdings? I'm also reiterating my original call on these stocks. Granted, they've been beaten down a lot and there are good arguments for why their sell-offs have been overdone. Indeed, investors who have higher tolerances for risk might be well rewarded for nibbling at these stocks. But with interest rates rising, inflation increasing, and geopolitical tensions continuing, the market could be quite volatile for some time. Thus it seems prudent for investors who have an average (or low) tolerance for risk to continue to hold off on buying these two stocks.
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My first round of large-cap metaverse play stock picks outperformed the market; here's round two.
