Video Game Stocks Poised to Challenge Their February Peaks
With more time spent indoors, video game stocks are far from finished. Keep an eye on these three top industry leaders for potential trading opportunities.
Global video game revenue surged by 7.2% last year
Video gaming remains a powerhouse sector, with worldwide sales approaching $150 billion in the previous year, marking a 7.2% increase from 2018. In North America alone, total gaming revenue exceeded $38 billion, according to insights from Newzoo, a leader in game analytics and market research.
This growth trajectory is expected to accelerate as ongoing social distancing measures and stay-at-home mandates grant consumers more leisure time to engage in gaming. Additionally, popular esports titles are likely to experience a spike in demand as sports enthusiasts seek virtual alternatives amid the absence of live events and stadium access.
From a technical perspective, the three video game stocks highlighted below have outperformed the broader market and are currently trading near their February highs. Let’s dive deeper into each company and explore potential trading strategies.
Activision Blizzard, Inc. (ATVI)
Based in Santa Monica, California, Activision Blizzard, Inc. (ATVI) creates and distributes content and services for gaming consoles, PCs, and mobile platforms. The company continues to enjoy strong demand for blockbuster franchises like "Overwatch," "Call of Duty," "Starcraft," and "World of Warcraft." Notably, the latest installment in the "Call of Duty" series, "Call of Duty: Modern Warfare," surpassed $1 billion in sales by December 2019. With a market cap nearing $50 billion, Activision Blizzard stock has gained 7.19% year-to-date as of April 15, 2020, and offers investors a dividend yield of 0.65%.
During the recent market downturn, the stock tested its 200-day simple moving average (SMA) around $54 before rebounding to trade just 1.3% below its 52-week high as of the latest close. Should a breakout occur, the stock could revisit its two-year peak at $83.46, recorded on October 1, 2018. Traders should consider placing stop-loss orders below this month's low of $56.68 to manage risk.
Electronic Arts Inc. (EA)
Headquartered in Redwood City, California, Electronic Arts Inc. (EA) develops and markets games for consoles, desktops, and mobile devices. The company, known for franchises such as "FIFA" and "Star Wars," plans to release 14 new titles between April 2020 and March 2021. In its latest quarter, EA's digital segment grew revenues by 24% year-over-year, offsetting an 11% decline in its mobile games division. As of April 15, 2020, EA stock has gained 4.20% year-to-date.
Since early 2019, EA’s share price has traded within a defined 25-point range, establishing clear support and resistance levels. Recently, the stock rallied 21% from the lower boundary of this range, with a breakout above the $115 resistance level appearing imminent. Traders entering at these levels might target profits near $150, where the stock previously encountered resistance in July 2018.
Take-Two Interactive Software, Inc. (TTWO)
Take-Two Interactive Software, Inc. (TTWO) ranks among the top global video game publishers with its two subsidiaries, Rockstar Games and 2K. The company’s popular titles include "Grand Theft Auto," "NBA 2K," and "Red Dead Redemption." Valued at $13.93 billion, Take-Two recently received an "overweight" rating from Wells Fargo, alongside Activision Blizzard, citing strong sector momentum and robust franchise strength. As of April 15, 2020, TTWO stock is trading flat year-to-date.
Over the past six months, the stock has moved within a well-defined descending channel, forming a continuation pattern known as a flag just below the upper trendline. Recently, the stock broke above this resistance and closed above its 200-day SMA, signaling potential for further gains. Swing traders might consider taking profits near the significant horizontal resistance at $134, while placing stop-loss orders below the pennant’s low at $117.20 to limit downside risk.
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