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Activision report could mean game on for Nintendo

Nicole Sinclair
Markets Correspondent

Activision Blizzard (ATVI) is scheduled to release quarterly earnings after the close Thursday and it could set the tone for what’s to come for the rest of the gaming group. Activision, and its momentum counterparts, including Electronic Arts (EA) and Take-Two Interactive Software (TTWO), have recently lost steam.

A value opportunity for Nintendo

One thesis behind the recent underperformance is that we are nearing the end of the gaming cycle that launched in 2013 with the release of Microsoft's (MSFT) Xbox One and Sony's (SNE) Playstation 4. But the gaming companies have emphasized we are just begining, with significant runway ahead.

And while the shift from hard-core to casual gaming and mobile is still nascent, out-of-favor momentum stocks could provide an opportunity to make a bet on a laggard: Nintendo (NTDOY), the king of casual gaming. Joshua Kennedy who is part of the fund professional community SumZero and is Managing Partner of Sonian Capital Management, is long on the stock, which is up 24% since January 2013, underperforming the S&P which is up 26% in the same period.

Nintendo has underperformed after failing to develop a mobile strategy. That could finally be turning around. And the company’s iconic slate of characters -- from Super Mario to Legend of Zelda and Pokeman -- provides a strong base for that shift, Kennedy said.

The company’s launch of four mobile apps this year could be the catalyst to boost shares; they previously only had consoles with no options to play on smartphones up until now. “Their hardware has limited their reach,” Kennedy said, adding that Nintendo hardware units topped out at 250 million units, compared to 2.5 billion smartphone users today.

Activision: The next gaming read

Meanwhile, with some investors calling for a peak in the industry, all eyes remain on Activision Blizzard, the company behind the “Warcraft” and “Call of Duty” franchises.  This comes after tepid reactions to recent reports from Electronic Arts (despite strong sales of “Star Wars Battlefront”) and Take-two (despite continued records in “Grand Theft Auto V”).

Activision is expected to provide commentary on holiday sales along with updates on its continued shift to digital and its new “Destiny” franchise. Investors will also look for more color on its recent aggressive push into social gaming with Candy Crush via its King Digital Entertainment (KING) acquisition, especially after fellow social gaming name Zynga’s (ZNGA) latest disappointing quarter.