ATVI: Top 3 "Buy the Dip" Video Game Stocks

Video game stocks have declined in recent weeks as investors took their profits off the table following a bull run for the ages. However, this is not a time to sulk over the reduction in prices.

Rather, this is the perfect opportunity to add to your video game stock positions or take advantage of the somewhat low entry point as a new buyer. Let’s take a closer look at Electronic Arts (EA), Activision Blizzard (ATVI) and Take-Two Interactive (TTWO).

Activision Blizzard (ATVI)

If you have kids or are a millennial, you have likely heard of Guitar Hero, Call of Duty, Overwatch, World of Warcraft and Tony Hawk Skating games. ATVI publishes each of these hit titles. The company has benefited from the transition to the digital downloading of games. In fact, ATVI goes out of its way to updates its titles throughout the entirety of the year to boost revenue and keep customers in the fold for the long haul.

Furthermore, the purchase of King Digital four years ago helped ATVI gain a foothold in the mobile gaming genre. ATVI has an average analyst price target of $78.21 yet the stock is currently trading at $70. ATVI was trading around $76 in mid-May.

The POWR Ratings have ATVI ranked number one of 13 stocks in the Entertainment – Toys & Video Games category. The stock aces the Buy & Hold and Trade Grade POWR Components.

As detailed in this informative piece, ATVI is strategically positioned for the video game industry’s evolution in the years to come. The temporary pullback in ATVI’s price just might present the best entry point throughout the remainder of 2020 and beyond.

Electronic Arts (EA)

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Most video game stocks are traded at forward P/E ratios well above 23. To the surprise of many, EA is currently trading at this forward P/E, meaning it has fairly solid value in an uber-popular industry.

EA titles include Madden Football, Battlefield and The Sims. The company sells games directly to customers on the web and also through web-based portals such as Play4Free and Origin.

The POWR Ratings have EA ranked second of 13 stocks in the Entertainment – Toys & Video Games category with an A Trade Grade as well as an A Buy & Hold Grade. EA’s price return across the past three months is nearly 18%. Furthermore, the company’s one-year price return is just under 25%. It gets even better, with a 90.70% five-year price return across the past half-decade.

EA hit $123 and dropped down to $117 even though the company announced an extension of its partnership with the NFL for the Madden Football series. The average analyst price target for the stock is $127.68, meaning there is considerable upside.

Take-Two Interactive (TTWO)

If you pay even the slightest bit of attention to the video game industry, you are aware of the Grand Theft Auto franchise as well as NBA 2K Basketball. These are both TTWO titles. The company is also responsible for the popular Red Dead Redemption franchise, L.A. Noire, Bully, Sid Meier’s Civilization and Borderlands.

TTWO raked in slightly more than $3 billion worth of revenue along with $632 million of free cash flow in fiscal 2020. The POWR Ratings have TTWO rated as a B with an A Trade Grade and an industry rank of #3 out of 13 stocks in the Video Games category.

TWO was priced at $146.84 on May 20. The stock is now trading at $134. The analysts insist TTWO is fairly priced at $151.17, meaning there is more than 13% upside. The high forecast for the stock is a whopping $175.

Though TTWO executives recently lowered guidance, GAAP revenue jumped 16% and earnings increased 21% in the recent quarter. ATVI has the potential to approach its 52-week high of $149.28 prior to the end of 2020 as we learn more about TTWO’s spike in sales resulting from the coronavirus pandemic.

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ATVI shares rose $0.14 (+0.19%) in after-hours trading Tuesday. Year-to-date, ATVI has gained 21.97%, versus a 0.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...