Please ensure Javascript is enabled for purposes of website accessibility

Ignore GameStop: Here Are 2 Better Stocks

By Parkev Tatevosian - Mar 9, 2021 at 8:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The meme stock is making a lot of noise, but these two stocks are better for your financial health.

GameStop (GME -5.31%) stock is on the rise again. After falling precipitously from its intraday highs over $400 to less than $40, it was shooting back up on Monday. All this price movement in a matter of months can make an investor queasy. It's better to invest in stocks that are less volatile and have more promising long-term prospects.

Facebook (FB -8.88%) and Peloton Interactive (PTON -5.51%) are each less volatile and have bright futures ahead of them. The former is the leading social media platform on the planet, claiming 2 billion members. The latter makes and sells exercise equipment that's so popular you will have to wait months to get your hands on one. Here's a look at why you can ignore the noise around GameStop and buy Facebook and Peloton instead.

A man ignoring a woman who is trying to talk to him.

Image source: Getty Images.

Facebook 

More than 3 billion people visit one of Facebook's family of apps at least once per month. That's nearly half of the world's population accessible to advertisers through a relationship with one company. What's more, the social media giant offers marketers the ability to choose their campaigns' scope. The range of options -- global or local, male or female, older or younger -- and the sheer size of Facebook's user base make it one of the most cost-effective sources for businesses looking to reach consumers.

That could be in part what is causing average revenue per user (ARPU) to rise as it is. In Facebook's fourth quarter, ARPU increased by 16.8% from last year to reach $8.62. ARPU can be increased by showing more ads to users or raising the price per ad that marketers are charged. Facebook controls the number of ads you see when you log on to one of its apps. If it wants to increase its apps' monetization, it can simply increase the frequency of ads. Of course, it needs to balance the number of ads shown with the user experience -- too many ads could discourage you from logging on. Still, the fact that it has 3.3 billion people who log on monthly and that the figure increased by 300 million in 2020 highlights plenty of room to increase monetization without losing platform visits.

Moreover, all this can be had at a bargain price. Facebook is trading at a discount to its social media peers Twitter, Pinterest, and Snap when measured by the forward price to sales ratio (see chart). 

A chart comparing Facebook with peer companies on price to sales ratio.

Data by YCharts.

Peloton Interactive

Peloton's connected exercising equipment, which comes with a subscription to live and recorded workouts, is a hit with health-conscious individuals. Sales are soaring, and new customers who want to get their hands on one have to wait up to 10 weeks for delivery. That is the problem Peloton faces -- too much demand and not enough supply. However, the company made two major acquisitions, one in late 2020 and one in 2019, to increase manufacturing capacity and balance supply with demand. As it brings these facilities online, it could add fuel to the fire that has already increased revenue by 100% in each of the last six years.       

Indeed, Peloton is guiding investors to expect revenue of over $4 billion in 2021. If it hits that target, it will be yet another year of over 100% revenue growth. The rapidly expanding business is starting to become profitable. In the six months ended Dec. 31, Peloton generated net income of $132.8 million compared to a loss of $105.2 million for the same period last year. The wheels are turning fast for this growth stock, and investors can feel good about starting a position in Peloton.

In fact, investors can ignore the hype around GameStop stock and buy Facebook and Peloton stock instead.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$178.81 (-8.88%) $-17.42
GameStop Corp. Stock Quote
GameStop Corp.
GME
$91.03 (-5.31%) $-5.10
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$36.36 (-3.96%) $-1.50
Snap Inc. Stock Quote
Snap Inc.
SNAP
$13.42 (-40.28%) $-9.05
Pinterest Stock Quote
Pinterest
PINS
$17.14 (-24.10%) $-5.45
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
PTON
$12.87 (-5.51%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.