These 3 videogame stocks got a boost this week after MoffettNathanson initiated coverage. But all three have been underperforming the market this year, which traders say is a buying opportunity. Here’s why.
Activision Blizzard (NASDAQ: ATVI), Take-Two Interactive (NASDAQ: TTWO), and Electronic Arts (NASDAQ: EA) all got a boost this week after MoffettNathanson analyst Clay Griffin intimated coverage of the videogame makers.
Griffin issued Buy ratings for Activision and Take-Two with price targets of $124 and $214, respectively, and a Neutral rating for EA with a price target of $151. The analyst’s price targets imply 30% upside for Activision, 21% for Take-Two, and 5% for EA from Wednesday’s close.
The multi-year outlook for Activision is “very good,” Griffin wrote in a note to clients, adding “the stability of its cash flows and sizable net cash position on the balance sheet today gives ATVI room to materially increase its capital return program, an additional source of upside optionality.”
For Take-Two, Griffin said it “arguably has the best owned-IP collection of franchises in the industry.”
Take-Two owns the most profitable game of all time, Grand Theft Auto V, as well as Red Dead Redemption, NBA and WWE 2K, and Borderlands.
“A concerted effort to expand its publishing frequency should allow for margin expansion, with increased top-line scale absorbing more of its fixed overhead,” Griffin added.
And as for EA, even as Griffin rated the stock Neutral, he also said the company boasts “unquestionably strong” key franchises and a “consistent and durable” cash flow profile powered by its portfolio of sports games. EA is responsible for the FIFA, Battlefield, Madden, Apex Legends, and Need For Speed franchises.
While all three stocks are up between 3% and 5% over the last week, all three have struggled this year and are underperforming the rest of the market. Activision has gained the most, adding just 2.79% so far this year. EA has risen just 0.16% year-to-date, while Take-Two shares are down nearly 15% since the start of the year. By comparison, the S&P 500 has gained just over 16% in the same timeframe.
This weakness, however, looks like a buying opportunity.
“I actually think all three of them are fine buys at this point as long as you have a long-term, let’s say, two- to four-year timeframe, especially with something like Take-Two,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. “The Grand Theft Auto franchise has already earned $10 billion.”
“The whole dynamic of the gaming industry remains very, very bullish,” Schlossberg added. “It’s a long-term buy, and whatever dip we have right now is just an opportunity to get longer.”
Miller Tabak’s Matt Maley has his eye on the charts for Activision and EA.
“Look at Activision, first of all,” Maley, the firm’s chief market strategist, said. “The stock looks like it’s making what you would call a double head and shoulders pattern. So if it does break below the neckline, which is right near its 200-day moving average, that’s about $89… you want to walk away from the stock and look fora reentry point at a lower level.”
Activision—which is best known for the ever-expanding Call of Duty franchise, and also owns World of Warcraft, Overwatch, and Diablo—closed at $95.44 on Wednesday, and Maley argued that there’s strong support that’s unlikely to break, noting that the stock only briefly moved below its 200-day moving average amid the COVID market lows last year.
Looking at EA’s chart, Maley noted that the stock is beginning to break below the bottom end of an “ascending triangle pattern” that has formed from a series of higher lows hitting up against a level of resistance.
“It’s only a slight break, and if it falls further again you might want to back away a little bit,” Maley said. “But, if you buy it on weakness as Boris suggests, don’t be afraid to add to it. If and when it breaks above that range of $145 to $150, that’s been really tough resistance, so once it breaks above that level at some point in the future, it’s going to take off like a rocket ship.”
