The video game stocks haven’t exactly been on a hot run of late. Undoubtedly, discretionary spending isn’t in the greatest spot these days, with inflation still a huge concern for many. Still, I do see value in some of the sold-off video game plays, even as most others look to dismiss them as dead money.
When it comes to video games, there’s big money to be made. But, at the same time, significant capital expenditures with no guarantee of success could make for a rather choppy stock chart. Indeed, that’s the nature of the entertainment content creation business these days.
As video games become more immersive and realistic, perhaps with more virtual reality (VR) titles eventually paving a path to the metaverse, the gaming plays seem worth checking out while they’re down and out.
In this piece, we’ll look at three video game stocks that show lots of promise.
Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) stock has been in a sideways correction (or period of price consolidation) for a number of years now. Undoubtedly, there’s nothing at all exciting about EA stock while it’s going for $140 and change, perhaps other than the fairly modest price of admission.
The stock trades at 18.9 times forward price-to-earnings (P/E), which is not a high price to pay for a firm with a wealth of top video game franchises. Not to mention EA pretty much has a monopoly in triple-A sports titles. Whether you’re a fan of the NHL, Madden, Soccer (or football as it’s sometimes referred to outside of America), or MLB, odds are you already have an EA Sports title in your library.
Up ahead, EA Sports College Football and Dragon Age: The Veilguard are intriguing releases that could help move the needle. Stifel’s Drew Crum thinks these two titles are less-appreciated catalysts that could propel the stock. I think he’s right; EA stock’s too cheap here.
Ubisoft Entertainment (UBSFY)
Ubisoft Entertainment (OTCMKTS:UBSFY) is a French video-gaming firm that’s worth going over the counter for while it’s trading at multi-year depths. The company is behind a number of franchises, Assassin’s Creed being the most notable among them. Unlike EA stock, which has gone sideways for years, UBSFY shares have been in a horrendous multi-year slide. At writing, the stock is off more than 80% from its July 2018 peak.
Despite a library of strong franchises, Ubisoft has stumbled with some big-budget flops in recent years. Skull & Bones, a title Ubisoft called referred to as “quadruple-A“, was a notable underperformer that shows incredibly ambitious projects are no guarantee of solid returns.
With Assassin’s Creed: Shadows launching later this year, perhaps Ubisoft has what it takes to catch a bid higher. The franchise has quite the following and may just help the dirt-cheap stock reverse course.
Tencent Holdings (TCEHY)
Tencent Holdings (OTCMKTS:TCEHY) is a Chinese internet giant that looks like the best value in video gaming right now. At writing, TCEHY stock is still down over 50% from its February 2021 highs. The firm behind the popular Chinese super-app WeChat may not be a video game pure-play, but it punches well above its weight class, backing numerous firms behind some of the world’s most popular games.
The company owns a majority holding in Clash of Clans maker Supercell, a partial holding in Fortnite maker Epic Games, all of Riot Games, the firm behind League of Legends, and stakes in many other gaming studios. These are profoundly successful titles that remain popular many years after their initial release.
With a library of stellar video game investments, Tencent could be the firm to own if you want exposure to live service games that can act as major cash cows for years, even decades, following launch. With Supercell launching its first new game, Squad Busters, in five years, questions linger as to whether it will have staying power as the hit sensation that was Clash of Clans.
On the date of publication, Joey Frenette did not hold (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.
