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Wells Fargo (WFC) Takes a Bullish Case in Video Games, Upgrades Activision (ATVI), Take-Two (TTWO)

Wednesday, April 8, 2020 | Steve Anderson
Wells Fargo (WFC) Takes a Bullish Case in Video Games, Upgrades Activision (ATVI), Take-Two (TTWO)

If there was a natural fit for a pandemic that's keeping millions of people indoors at any given time, it's got to be video game stocks, right? Oddly enough, that's not the case at a lot of firms, as video game stocks are having a rough time finding upward momentum amid sales that aren't exactly brisk. However, an extra life for gaming seems to be afoot as a new player has entered the game: Wells Fargo (NYSE: WFC). It's already made some serious moves, kicking off its coverage of Activision (NASDAQ: ATVI) and Take-Two (NASDAQ: TTWO) with “overweight” ratings.

What Makes Activision and Take-Two So Great, Anyway?

Wells Fargo certainly put a lot of weight behind Activision and Take-Two right out of the gate, but it did so with some sound logic. It noted that these two companies have some impressive franchises behind them; Activision has not only “Call of Duty” but also everything in the Blizzard stable, which includes “Overwatch,” “Diablo,” and “World of Warcraft”, while Take-Two has the entirety of the Rockstar lineup, among others, which means “Grand Theft Auto” and recent blockbuster “Red Dead Redemption” are both in play.

That's certainly a good reason to like these firms, but they hardly stopped there. Wells Fargo also noted that these are big-name firms in a good market for gaming. With more people staying at home and in the market for entertainment—because what else is there unless you're able to work from home?—gaming should benefit from the overall conditions.

Sales, However, Don't Suggest Much of a Bull Run

Gamers, meanwhile, are likely scratching their heads at Wells Fargo's appraisal. A look at the charts for each company suggests minimal gains, and even some losses. Activision, for example, is up merely 1% in a year-to-date study, while Take Two is actually down 2%.

However, there are points in the charts that also suggest gains. Activision, for example, is trading above both its 50-week and 200-week moving averages, which suggests that it's not likely to falter much beyond where it already is. Take-Two, meanwhile, is a smaller operation that's got some very big licenses to its credit, and with the release of “Grand Theft Auto 6” a near-certainty in the next several months or so, that's a big slug of revenue potentially inbound.

Throw in the fact that a lot of analysts already like what these two firms have to offer—83% of analysts currently have either “buy” or “overweight” ratings on Activision and 69% are likewise on Take-Two—and that certainly suggests there are good things going on here.

The Wider Market May Be an Issue

Wells Fargo's support for Activision and Take-Two is certainly reasonable, but not without its flaws. The most noteworthy part here is that the same issue that's helping the potential demand for video games—the coronavirus—is also likely to damage supply.

Several major titles have already seen delays from early this year to later this year. Titles like Square Enix's release of “Avengers” and CD Projekt Red's hotly-anticipated “Cyberpunk 2077” have been pushed back to September from original dates of May and April, respectively. It's especially noteworthy in “Cyberpunk 2077”'s case as it's said to be shorter than “The Witcher 3” was.

Yet even these dates are now in doubt thanks to the coronavirus, which has shuttered a range of operations worldwide. There are even some stirrings that the planned next generation of consoles—set to go live “holiday 2020”—may find themselves just as delayed thanks to supply issues in recently-recovered China.

Picking Winners and Losers May Not Be a Cheat Code to Success

Certainly, both Activision and Take-Two have a lot to like, but trying to pick individual winners may not be the way to go. Several video game-based exchange-traded funds (ETFs) exist, including the ETFMG Video Game Tech ETF (NYSEARCA: GAMR), the Global X Video Games & Esports ETF (NASDAQ: HERO) and the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA: NERD).

Activision and Take-Two may be good stocks, but their release schedules are going to be pretty thin for a while. A broader, but shallower, exposure to this up-and-coming market could be just the way to go, though for those looking to hitch their wagons to one star in particular, these are certainly two of the better options.


20 Stocks Wall Street Analysts Love the Most

Every trading day, between 500 and 800 new recommendations and research reports are issued by sell-side equities research analysts. There are between 300 and 500 brokerages and research houses that issue ratings, price targets and recommendations and more than 5,000 securities around the world that regularly receive coverage from research analysts.

MarketBeat has tracked more than 170,000 distinct analyst recommendations in the last 12 months alone. Given the volume of ratings changes that occur each day, it can be difficult to sift through the noise.

Analysts don't always get their "buy" ratings right, but it's worth taking a hard look when more than a dozen different analysts from different brokerages and research firm are giving "strong buy" and "buy" ratings to the same stock.

This slide show lists the 20 companies that have the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.

View the "20 Stocks Wall Street Analysts Love the Most".

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