3 Gaming Stocks to Buy on Activision-Blizzard-Induced Dip

  • Thriving mergers and acquisition activity should sustain gaming stocks over the next few quarters.
  • Microsoft (MSFT): The tech giant will climb into the world’s top three gaming companies if the deal to purchase Activision Blizzard (ATVI) goes through
  • Capcom (CCOEF): The Japanese gaming stock is set for robust growth this year and has a strong portfolio of gaming franchises.
  • Nintendo (NTDOY): After a record year in 2021, the gaming stock trades at cheap valuation multiples, creating an opportunity for long-term investors to enter this gaming giant.
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Gaming stocks have gained traction in the past two years after the pandemic ignited a period of unparalleled growth. With many of us stuck at home during the pandemic, rising investor interest in the industry prompted an incomparable consolidation trend that should propel gaming stocks to fresh highs.

In January, Microsoft announced the largest Merger and Acquisition (M&A) deal in the gaming industry: A plan to buy Activision Blizzard (NASDAQ:ATVI) for $68.7 billion. ATVI stock rose significantly after the acknowledgment of the deal, but its shares dipped in the past week, amid growing fears that U.S. antitrust regulators will deny the merger.

Despite thriving M&A activity in the gaming industry, the performance of the sector measured by the VanEck Video Gaming and eSports ETF (NASDAQ:ESPO) plunged 21.07% to $52.49 per share; whereas, the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) lost only 10.18% to $429.06 per share.

However, the gaming consolidation wave seen in the past year should push an increasing number of speculative bets toward the prosperous industry, creating a constructive environment for the whole sector. In this context, here are three stocks to buy now to benefit from these outcomes.

Ticker Company Current Price
MSFT Microsoft $25.21
CCOEF Capcom $13.11
NTDOY Nintendo $54

Microsoft (MSFT)

Microsoft (NASDAQ:MSFT), the well-known technology giant has a growing exposure to the gaming industry and is well-placed to increase its market share if the ATVI merger goes through.

The company reported gaming revenues of $3.74 billion in Q1 2022, up 6% compared to Q1 2021, driven by growth in Xbox content, Game Pass subscriptions and hardware. The ATVI merger will enhance MSFT’s gaming revenue, positioning the company in the top three gaming companies in the world. The deal is expected to close before June 2023, but it is subject to regulatory approvals in the U.S., China and European Union, fueling worries about a potential blockage or delay that could bring headwinds to MSFT stock.

Despite that, the diversified tech giant has strong fundamentals and is well-positioned to continue to outperform the gaming sector in the next years. Net sales are expected to advance robustly, up 18.4% to $199 billion in 2022; whereas, net profit is estimated to jump 18.6% to $72.6 billion in the period. With this robust growth, MSFT’s net margin is projected to flatten out compared to 2021, posting an elevated profit margin of 36.5% on the year.

MSFT stock exchanges at high valuation multiples, with a forward EV/EBITDA of 20.9x and a 2022e price-to-earnings ratio of 29.4x. Yet, MSFT is a great diversified gaming stock that grows at a steady organic pace and that is set to benefit from the induced dip in ATVI stock if the combination deal goes through or not.

Capcom (CCOEF)

Capcom (OTCMKTS:CCOEF) is a Japan-based developer of online, mobile and arcade video games with expertise in developing highly original games. In February, the company announced the release this summer of its renowned fighting game, Street Fighter 6, the next evolution of the series which sold more than 47 million units since it was the first released 35 years ago. This constructive announcement should sustain CCOEF stock.

In addition, Capcom is expected to enhance top-line growth this year, expanding 18% to JPY 111.4 billion versus a yearly growth rate of 16.8% in 2021. On the other hand, CCOEF’s net profit is projected to decelerate in 2022, up 30.1% year-on-year to JPY 32.4 billion compared to a rapid advance last year of 56.3% to JPY 24.9 billion.

The Japanese video game developer is fairly valued compared to its U.S. gaming peers. CCOEF stock trades at 14x 2022e EV/EBITDA and 24.3x forward P/E. Besides, the gaming specialist offers an estimated dividend yield of 1.18% in 2022 and the recent splashy deals in the video game industry should drive speculative bets on CCOEF stock, given its world-renowned gaming franchises.

Nintendo (NTDOY)

Nintendo (OTCMKTS:NTDOY) is one of the leading video game developers and game console producers with a strong portfolio of gaming franchises, including Mario, Pokémon and The Legend of Zelda.

The gaming giant should also be on your watchlist, as deals in the video gaming industry hit record highs. However, NTDOY’s outlook is on a decelerating path, after a strong performance last year. After jumping 34.4% to JPY 1.75 trillion in 2021, revenues are estimated to decline 3.7% to JPY 1.69 trillion this year. On the other hand, net earnings are projected to decline steeper in 2022, down 7.2% to JPY 445.9 billion. This, however, represents an elevated profit margin of 26.3% per year.

The gaming stock witnessed consistent growth in active playing users for Nintendo Switch gaming consoles and is expected to exceed the 100 million per year threshold this year. Besides, the stock exchanges at a discount compared to other major gaming stocks, posting a forward EV/EBITDA of 8.71x, 2022e P/E ratio of 15.7x and offers a moderate dividend yield of 3.22% in 2022.

On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.


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