If you’re looking to invest in the American market and you want to pivot your portfolio toward gaming, these are the three stocks to do it with.
Gaming has seen a huge amount of growth in the last few years as more people realize just how enjoyable they can be and, compared to other forms of leisure, they’re also incredibly inexpensive. Today, we’re going to look at three stocks in detail that you might want to consider for a 2020 investment.
As always, remember to do your own research when it comes to making investments, understand that you can lose your money when investing in the stock market and you should always seek the opinion of professionals before making a final decision. Now with that, all said, let’s get down to some fantastic stocks to consider if you’re looking to invest heavily in the gaming industry.
Activision Blizzard Inc.
Trading on the NASDAQ with the ticker ATVI, Activision Blizzard (AB) is currently trading at a price of $63.52. With a market cap just below 50 billion, it should come as no surprise that this is the largest publically traded company that focuses almost exclusively on gaming products. Back in 2008, Blizzard and Activision merged to form the new company that owns some of the most popular gaming franchises in the world, including Diablo, Call of Duty and perhaps the most well-known of them all, World of Warcraft.
The company has also invested heavily in mobile ventures through its ownership of King, which it purchased in February of 2016 for just under $6 billion. King is most known for its suite of titles in the Candy Crush family – a highly-profitable title that is free to play but allows people to get certain advantages by paying small amounts of money in order to progress to ever increasingly difficult levels.
Last month, Morgan Stanley lifted its price target for Activision Blizzard to $65 per share, still quite a few percentages points off where ATVI is currently trading. Nomura was also willing to put out a buy rating for the stock with a price target of $70.
While the dividend yield is quite low for Activision Blizzard stocks, investors will look toward the success of WoW Classic, positive reception of future expansions, a growth in sales from China and other key indicating factors that show good potential for the stock. While we’re unlikely to see any insane movements over the next few years, this could very well be a $100 billion company by 2030.
Potential problems with holding ATVI shares include a P/E ratio of 32.5, relatively poor dividend yields and uncertainty around consumer demands and trends for certain types of gaming products. The gaming market is one of the most difficult to predict, with the last few years seeing a number of ‘vote with your wallet’ campaigns for developers and publishers that overpromise and under deliver.
Electronic Arts Inc.
Trading on the NASDAQ with the ticker EA, Electronic Arts is perhaps more of a household name for investors than Activision Blizzard is. EA generally has quite a diversified range of gaming genres that they focus on, but the most profitable for the company is their sports like, which includes titles such as FIFA and Madden.
Particular attention ought to be paid to EA’s FIFA games, which attract an extreme amount of revenue owing to their unlock features for in-game footballers that you build your team with. This has become a cash cow for the company and ought to be considered part of the attraction for new investors.
Electronic Arts also publish popular non-sporting titles, including the Battlefield and Star Wars IPs alongside Apex Legends. Less exposure to the mobile side of gaming is available through Electronic Arts as compared with Activision Blizzard, as the majority of their revenue is sourced from PC, Xbox, and PlayStation products.
EA currently trades at $110 a share with a market cap of around 32 billion. Their P/E ratio is perhaps more attractive to investors at 11.5 compared to Activision Blizzard who are looking for a great value purchase.
That said, the company has never paid a dividend although it does engage in stock buybacks from time to time, which may or may not be beneficial to your individual tax situation. Credit Suisse has maintained a buy rating on Electronic Arts for an extensive period of time, reiterating its position to a price target of around $123 just two weeks ago.
One potential downside of the investment potential of EA is its overreliance on the loot-box style of income generation. Many legislative bodies around the world have already taken steps to combat what they see as gambling – only time will tell how EA will handle the pressure from various stakeholders in this particular domain.
With a market cap of 6.5 billion, Zynga is far from a small player in the gaming space, but they’re a company that still might have a large amount of growth in them – which investors are really hoping to see over the next few years.
With an unusually high P/E ratio of 161, Zynga might appear to be trading well above its true value, but very few rating firms on the street seem to see this as a particular issue. Just last week, Morgan Stanley set a price target for Zynga at $7.75 – around 10% higher than its current price of $7.
Gaming products offered by Zynga are almost all mobile, with titles similar to those you’d find over on the MrPornGeek platform in his reviews of online sex games – only without the adult element. Wedbush is incredibly bullish with regard to Zynga – they currently have a target set for around $9 through analyst Michael Pachter.
One of the biggest potential risks when it comes to Zynga is its abnormally high P/E ratio. While growth is anticipated, the gaming market is still emerging and makes up a small fraction of the overall economy, which might hinder its ability to continue expanding and building ever-better titles. Additionally, regulatory hurdles and reliability on third-party platforms such as the Apple store could adversely affect the freedom Zynga has to build the products and games it desires.
Regardless of which gaming company you consider investing in, remember to do your own research and never risk more money with investing than you can afford to lose. While the stock market has traditionally trended upward over the years, there is no guarantee for future success.
Gaming companies offer exciting and attractive growth opportunities – only time will tell how successful these investments are for people who make them today.