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- The CEO of an ETF firm shared his four favorite metaverse and cybersecurity "category killers."
- Michael Loukas described category killers as hypergrowth stocks that could become the next FAANGs.
- He prefers Unity and Roblox for the metaverse and CrowdStrike and Zscaler for cybersecurity.
Since 2009 the S&P 500 has gained 663% — during that same period shares of Alphabet have risen 1,400%, Apple returned 5,310%, Amazon gained 5,500%, and Netflix has risen an eye-popping 10,390%. Meta went public in May 2012, and since then shares are up 801%.
"The FAANG stocks were hypergrowth secular trends 15 years ago. Today they're some of the largest companies on the planet," said Michael Loukas, the principal and CEO of the exchange-traded-fund firm TrueMark Investments. "Who doesn't look at FAANG and wish they bought every single one of these 20 years ago?"
While it may be too late for investors to capitalize on the colossal gains of the five FAANG names, Loukas identified four metaverse and cybersecurity stocks he believes will one day reign as "category killers."
Loukas defines category killers as firms that are "thriving" in a hypergrowth phase and have the potential to become the dominant players within their respective segments. He said that to determine the growth of these typically early-stage companies, he prefers to examine more "fundamental" metrics like customer adoption rather than earnings, since software companies' revenues are "essentially generated by customer acquisition."
Metaverse: Buy Roblox and Unity Software
Among the metaverse contenders, Loukas' favorite names are the video-game software developer Unity Software and the gaming platform Roblox, based on their robust core businesses, domination of the gaming market, and good fit between the metaverse angle and their existing technologies and value propositions.
"Unity really has industry-leading technology when it comes to building digital infrastructure and creating interactive, real-time 3D content for gaming," Loukas said. He added that this kind of cutting-edge technology gives Unity a huge advantage over competitors because of how instrumental it is in creating the metaverse's infrastructure and building hyperrealistic digital environments.
Loukas said that beyond these use cases, Unity's technology and "other verticals in architecture, construction, medicine" would allow it to participate in burgeoning industries like NFT development.
"Unity is a beast when it comes to anything that can benefit from AR and VR and real-time 3D," he said. "So think about all the applications for that."
On the other hand, Roblox enlists existing technology in its platform, Loukas said. But even though the technology may not be as advanced, it's "stackable," Loukas said, in that it allows its younger audience of almost 50 million daily users to build their own interactive and immersive worlds, which "coincides really well with what the metaverse is meant to do."
"You've got a whole generation of users that are already familiar with and comfortable with Roblox technology, so Roblox has a distinct advantage," Loukas said. "The metaverse becomes just another opportunity for expansion for these companies that were already growing at such a rapid pace and growing into different verticals."
"But for us, the category killers end up being the companies that not only benefit but have a core business outside of this," he said. While Unity has differentiated itself with its many verticals and industry dominance, Roblox has a head start in monopolizing the "child user space," he said.
"They'll continue to dominate the way they have for years in different segments, and the metaverse will expand the runway and the potential marketplace in which they can continue to grow," Loukas said.
Cybersecurity: Buy CrowdStrike and Zscaler
"Similar to what happened with Unity and Roblox, these companies were there growing, building a client base successfully, and then the pandemic hit," he said. When work-from-home initiatives skyrocketed in March 2020, the cybersecurity industry began garnering more attention, he said.
"Cybersecurity was always increasing in importance, but you have these macro events that draw the attention to a secular trend that already exists," Loukas said. "It's an established trend that's perfectly connected to the idea of the irreversible global digitalization — we're not going back."
Loukas said CrowdStrike and Zscaler are both "very effective at what they do" but work from two different angles: While CrowdStrike works on the "periphery of the cloud," Zscaler, a cloud-based cybersecurity company, works at the "core."
"They're very different types of cybersecurity, and both are effective," he concluded.
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