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Want a 90% to 236% Return? Try These Growth Stocks, Says Wall Street

By Anthony Di Pizio – Jan 3, 2022 at 4:20AM

Key Points

  • Sea Limited's "Free Fire" is one of the top-grossing mobile games.
  • Skillz secured a deal with the NFL in a major win for its mainstream ambitions.
  • Both companies have an exciting year ahead with strong endorsements from Wall Street.

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History suggests the market won't be as strong in 2022 as it was in 2021, but that doesn't mean there won't be big opportunities.

With 2021 now in the books, we've left behind an incredibly strong year for the stock market. The S&P 500 index logged 70 new all-time highs throughout the year and delivered a return of 27% -- far above the index's 10-year average of 13%.

But now, we're in a brand new year, and although historical averages suggest 2022 won't be as strong as 2021, investors can still find market-beating returns in many individual stocks. In fact, prominent Wall Street firms think these two mobile-gaming companies could supercharge your portfolio over the next 12 months.

A smiling gamer playing on their smartphone, with headphones on.

Image source: Getty Images.

1. Sea Limited: Implied upside of 90%

Singapore-based Sea Limited (SE 1.24%) reached an all-time high of $373 in October before a broad tech sell-off struck it down to $224, where it trades today. The company is a triple threat when it comes to the digital economy, operating in high-growth industries that include mobile gaming, e-commerce, and digital payments.

Its mobile-gaming business, Garena, owns Free Fire, one of the top-grossing games in both Apple's App Store and Alphabet's Google Play store. In 2021, the game surpassed one billion downloads and hit a record-high 150 million daily active users. Given that it launched in 2017, its continued popularity is incredibly impressive.

In the third quarter, Sea Limited generated $2.7 billion in revenue, up 122% year over year. Its digital entertainment segment (which includes gaming) was responsible for $1.1 billion of that top line, and its e-commerce segment (which includes payments) contributed $1.5 billion. The latter grew faster at 134% year over year.

But looking at the big picture, the company is on track to deliver $9.5 billion in full-year 2021 revenue. That's 800% growth since 2018, when it cleared $1 billion in annual revenue for the first time.

It's little wonder that investment bank Barclays has attached a $427 price target to Sea Limited stock, which means the bank expects shares to soar over 90% from here.

Three smiling friends playing mobile games and celebrating.

Image source: Getty Images.

2. Skillz: Implied upside of 236%

When it comes to mobile gaming, Skillz (SKLZ 4.17%) takes a different approach to Sea Limited. It doesn't develop games itself, instead building an ecosystem for developers to generate revenue from their creations. The platform is designed to solve a critical problem: Just 2% of game developers achieve "break-through success" in the industry, according to the company, so developers need to get creative about how they monetize.

Skillz runs real-money tournaments for its users with the games on its platform. Players pay an entry fee and have the potential to win a cash prize if they manage to rank high enough. Out of the prize pool, Skillz takes a fee and so does the game developer, which means revenue can be generated without the game being wildly popular and without a huge marketing budget.

The company now runs over five million tournaments per day for its 30 million users, who spend twice as much time on the platform as the industry average. While the majority of the games on Skillz are from small developers, the company recently bagged a big fish. The National Football League has enlisted Skillz to run a developer challenge where game makers will compete to build the league's very own mobile game. The competition is now in the semi-finals.

This foray into the mainstream caps off a very strong 2021 when Skillz is set to grow its revenue to $389 million for the year, a 69% increase from 2020. And in 2022, analysts expect the company will deliver $549 million, crossing the half-billion-dollar mark for the first time.

Wall Street firm Wedbush Securities has a $25 price target on the stock, representing 236% in potential upside from its current price of $7.44. Therefore, Skillz could be the firework your portfolio needs to crush the market in 2022, but keep in mind, high rewards are never without risk

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Apple, Sea Limited, and Skillz Inc. The Motley Fool recommends Barclays and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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