[Editor’s note: This story was originally published in November 2018. It has since been updated and republished to coincide with today’s rout in video game stocks.]
If you’re looking for an investment sector that is very likely to rise higher, video game stocks are your ticket. The concept of the video game has evolved from nerdy niche to mass mainstream infiltration. Still, powerful fundamental tailwinds haven’t prevented video game stocks from absorbing huge losses.
Indeed, anywhere you look, the major (and minor) indices are flashing red. The broader markets finished 2018 down 6.2%, and our own Dana Blankenhorn, in November 2018, stated bluntly “we’re already in a bear market.” Any contrarian analyst would be hard-pressed debating Blankenhorn on this issue as the volatility persists into 2019.
I’m certainly not going to attempt it, especially if I’m looking at esports and gaming stocks. The video game as an investment vehicle is a platform that has profited many investors handsomely over the years. Unfortunately, the declines in video games and esports stocks over the past year have forced everyone to rethink their assessments.
I can’t deny the obvious: This is a time when all market participants should strongly consider protective measures. We have many factors that are completely unrelated to video games but could end up roiling video game stocks. However, I’d also caution against overreactions. Recall that the Dow Jones lost double digits between late January and early February of 2018 …
The point is to protect yourself from this violent storm, but also to realize that all storms eventually fade away, producing excellent deals only in hindsight. If you’ve got the nerve, here are seven video game stocks on serious discount.
Source: Dalvenjah via Flickr
When you think about the modern video game, you immediately think about Sony (NYSE:SNE). Admittedly, SNE stock has become a running joke within consumer-electronics circles for the underlying firm’s other endeavors. For instance, its smartphone is nowhere near as popular as Apple’s (NASDAQ:AAPL) iPhone, and it once ran a computer-monitor business.
But don’t ever question SNE stock for its part in advancing the video game to the mainstream.
Its PlayStation console resonates deeply with consumers, and better yet, it keeps improving. Just a few days ago, Sony announced during the Consumer Electronics Show (CES) that the current-generation PlayStation 4 hit 91.6 million unit sales. More impressively, this tally occurred over roughly a five-year lifespan.
Of course, the markets don’t typically respond to past achievements. What makes SNE stock so compelling for the video game industry is corporate synergy. Make fun of Sony all you want, you can’t deny its vast entertainment portfolio. Management can easily leverage this for exclusive titles, which they do frequently for marquee brands.
Every great organization has an equally great competitor. In the war of supremacy for the video game, we have two top console-makers: Sony and Microsoft (NASDAQ:MSFT). The rivalry between the two tech giants is no joke for many gaming enthusiasts.
Microsoft stopped reporting sales figures for its Xbox console, which understandably drew snide snickering, but estimates put it around the 40 million mark. Based on this, Sony is vastly outpacing Microsoft in the console wars. But that hasn’t stopped MSFT stock from making significant gains in the markets.
Part of the reason is that in terms of graphics and gameplay capabilities, Microsoft has largely gone toe-to-toe with Sony. Additionally, the house that Bill Gates built features its own batch of attractive exclusive titles, including the ultra-popular “Halo” series. Naturally, this has encouraged long-term investors to pile in on MSFT stock.
And while I’m a Sony guy, I think Microsoft offers better overall stability. Along with its video-game business, it has a virtual lockdown on PC operating systems and various pieces of professional software. Plus, MSFT stock pays a much higher dividend, which isn’t something to ignore at this juncture.
In my opinion, and those of fellow gamers, the architect of today’s video game is Nintendo (OTCMKTS:NTDOY). However, other video game stocks have captured investors’ attention. Moreover, as a Japanese over-the-counter name, NTDOY stock doesn’t always generate positive news.
That has proven especially true in 2018. Last year, NTDOY stock returned handsome monetary rewards for shareholders thanks to the Nintendo Switch. This spectacular console is actually a hybrid device. Nintendo designed the Switch primarily for home usage, but you can just as easily take it on the road. However, great news becomes old news quickly, and shares faltered.
Still, the scope of the damage seems excessive. Over the past year, NTDOY stock has dropped a staggering 30%. While further losses are not out of the question due to the overall market panic, the bears are overlooking the company’s long-reaching brands. For instance, the “Mario Bros.” franchise is gaming gold, which Nintendo can leverage for profitable synergies.
Electronic Arts (EA)
For anybody who has picked up a video game in the last decade, chances are, you fed the Electronic Arts (NASDAQ:EA) cash cow. From developing games for the Commodore Amiga — does anybody remember that? — to driving the latest innovations in esports, EA stock is a mainstay within the industry.
That said, video game stocks have incurred horrific losses, and Electronic Arts was not spared in any way, shape or form. Since July 25, EA stock has hemorrhaged more than 43% of market value. Some of that was due to the poor outlook given in its first-quarter fiscal 2018 earnings report. But later losses stemmed from internal issues, such as the delayed launch for its heavily-anticipated video game Battlefield V.
I understand why investors are now hesitant on EA stock. A few months ago, I provided my analysis on the company’s extreme volatility. That said, my ultimate take is that Electronic Arts suffers from fixable problems.
Moreover, they leverage an enviable sports-licensing franchise. No matter what happens, throngs of gamers always eagerly await the latest iteration in the Madden or FIFA series. On the surface, such fandom seems irrational because the changes are minute. Still, the consumers are shelling out big bucks every year, so who am I to judge?
Activision Blizzard (ATVI)
One of the biggest reasons why the video game industry has captured mainstream attention is the proliferation of the online shooter genre. And in this genre, no one does it better than Activision Blizzard (NASDAQ:ATVI).
Over the last few years, ATVI stock has skyrocketed based largely on its Call of Duty franchise. Rather than being shunned by the real heroes in uniform, our military forces embrace these games. Earlier last year, Activision announced that it donated more than $100,000 worth of Call of Duty games to the United Service Organizations, or USO.
However, like Electronic Arts, ATVI stock incurred heavy losses in the markets. Since the close of Oct. 1, Activision shares have tanked 40%. A major culprit is fierce competition, particularly from Epic Games’ Fortnite.
In the long-term, though, ATVI stock looks very intriguing. Over a year-and-a-half of market gains was wiped out in less than two months’ time. That’s a little bit over the top considering that the company levers one of the most popular franchises among video stocks.
Semiconductor firms like Nvidia (NASDAQ:NVDA) started to light up the markets in 2016, and that momentum continued into last year. Unfortunately, we learned a physics lesson with NVDA stock: what goes up must come down.
And shares are doing exactly that. What appeared to be a promising start for 2018 turned into a veritable nightmare. Between the January opener and the end of September, NVDA stock gained nearly 44%. Since the beginning of October, however, the company has tumbled over 48%, finishing the year down 31%.
As a leader in advanced technologies, Nvidia took the brunt of the sector fallout. The geopolitical wrangling between the U.S. and China isn’t helping matters. Plus, the severe plummeting in bitcoin prices is likely to negatively impact its crypto-mining-specific graphics processing units, or GPUs.
Nevertheless, I really like NVDA stock, especially at these prices. I’m not the only one, as notorious short-sellers Citron Research just recently reversed their bearish take on the company. While you shouldn’t rush in simply based on one expert opinion, Nvidia offers exposure to multiple next-gen businesses. I doubt that NVDA will stay deflated for long.
In following with my usual routine of sticking speculative names in the back, I bring to you GameStop (NYSE:GME). GME stock is easily one of the riskiest investments among video game stocks. The company pays out a near-10% dividend, which tells you all you need to know.
The other reason that GME stock is down — aside from all the terrible factors that slammed valuations — is related to its PR crisis. Many gamers hate GameStop because the retailer rips off customers who are looking to trade in their games and paraphernalia.
That’s true, but at the same time, you can’t have it both ways. The reason why other gamers love GameStop is due to their extensive library of preowned products. In my opinion, it’s far superior to online sales and subscription-based services due to its easy return policy: if you don’t like a particular video game, just return it.
This return policy is a major but underappreciated benefit for GME stock because many gamers are young. They (or their parents) may not have the funds for subscription services. GameStop gives these customers better pricing and superior flexibility.
As of this writing, Josh Enomoto was long SNE and bitcoin.
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