Investors should always be on the lookout for major industry growth trends and the companies leading them. If you look back on the best stocks of the last few decades, they were leaders in products like PCs, internet technology, streaming, and e-commerce. And the leaders in each industry ended up being massive growth stocks for investors.
There are opportunities in new industries today, and three stand out to me: video game technology, renewable energy, and real estate.
1. Video game technology
Video games are big business, whether on PCs, consoles, or mobile devices. But the trend investors should be most excited about is the underlying video game technology, or game engine, that's allowing video games to creep into movies, real estate, and more.
The game engine is the software used to build games and even animations. Rather than building games with code directly, by using a game engine, developers can build games with relatively simple design tools.
One of the most popular game engines is Unity (U 10.20%). It's a common engine for building virtual reality games and augmented reality experiences but is also popular for mobile and PC platforms. The company grew revenue 39% last quarter to $220.3 million and could be one of the most consistent growth platforms in video games over the next decade.
To monetize its software, Unity charges an annual or monthly fee to users. But its real upside is in advertising and its asset store. These services provide upside the more developers use the Unity game engine.
Game engine technology is finding new use cases across industries from architecture to film to medicine, and as these use cases grow, so will stocks like Unity.
2. Renewable energy
One of the most incredible changes in energy over the past two decades has been the emergence of renewable energy as an economically viable source. Wind and solar projects are now winning contracts with utilities and corporations based on costing less than coal, nuclear, and even natural gas around the world. And that's driving exponential growth for the industry.
Adding fuel to the fire is the Biden administration's policies toward renewable energy, which are more favorable than we've seen in the last four years. That'll lead to friendlier regulation, and in addition, the multitrillion-dollar infrastructure bill that's been proposed today includes money to modernize the grid and expand renewable energy production and energy storage.
To ride the wave, there are three renewable energy stocks that I think investors should consider. On the solar side, SunPower (SPWR 16.14%) is a leading technology company in deploying rooftop solar for residential and commercial buildings. It has also expanded into energy storage, where it offers battery storage that combines with solar to make customers more energy efficient.
As for deployment, Brookfield Renewable Partners (BEP 4.64%) plays a crucial role in financing renewable energy projects. The company buys projects and then pays a dividend with the cash flow generated from those projects. The stock has a 4.6% dividend yield today and should be able to grow as the renewable energy industry expands.
On a more speculative front, Bloom Energy (BE 6.51%) is a hydrogen company that could play a big role in building the future of the grid. The company makes fuel cells, which provide backup power to the grid and commercial buildings, but the long-term vision is to create hydrogen with electricity from wind or solar power plants and water through electrolysis. Once that hydrogen is produced, it can be stored and transported and ultimately deployed using another fuel cell close to the point of electricity demand. Hydrogen could be a key medium for energy storage long term, and Bloom Energy is a leader in the space.
3. Real estate technology
The value of homes in the U.S. stands at an incredible $36.2 trillion, according to Zillow (Z 5.91%), and any company that can add value to the real estate market or disrupt the decades-old brokerage business could have a multitrillion-dollar business. The two that I have high hopes for are Zillow and Matterport, which is merging with the SPAC Gores Holdings VI (GHVI).
Zillow's business was built on providing data on the housing market to users and an advertising platform for real estate agents. And agents fund most of the company's business today. But the future is being the buyer and seller of real estate.
Zillow Offers will let homeowners sell their homes without any of the headaches usually associated with selling, like showings, repairs, and an unknown closing date. The Offers business is still small today, with home sales numbering just 923 in the fourth quarter of 2020. But the business could be big and profitable. Last quarter, Zillow generated $29,547 in gross profit per home sold and generated $304 million in revenue. In time, this could dominate Zillow's business and open up hundreds of millions of dollars in revenue opportunity for the company, while making the process of selling a home easier for people around the world.
Matterport is a spacial-data company that captures what the space inside a home or business looks like. The company's technology allows anyone to take 360-degree images with a phone or specialized camera and create a "dollhouse" view of homes and businesses. This data can then be used for virtual tours in home sales, interior design, construction, building management, and much more. As data becomes more important in selling and managing real estate, Matterport is creating the tools that businesses and homeowners will need. And that could make this a disruptive company in real estate.
Riding the big trends
Video game technology, renewable energy, and real estate technology are booming businesses that are only going to get bigger over the next decade. If you're looking for growth stocks, these are great places to find them, and investors can ride the tailwinds of industry growth to big-time gains.