Rotation into recent underperformers has been discussed at length this week, but video game stocks are just one more example of this dynamic. Video game stocks like Activision Blizzard (ATVI), Electronic Arts (EA), and Take-Two Interactive (TTWO) saw a rough finish to 2018, and unlike other parts of the market, they never managed to retake their previous highs. Although it has been a slow climb back in 2019, the S&P 500 GICS Level 4 Interactive Home Entertainment Sub-Industry which is comprised entirely of these three major video game stocks has begun to rise more rapidly. In fact, the industry has started to outperform the broader market (S&P 500) since the end of July with this outperformance accelerating more recently, as shown in the chart below.
Perhaps the most notable of these stocks has been ATVI. Late last year, the stock saw a massive gap down followed by nearly a year of moving sideways with some marginally higher lows. In the past week, though, ATVI has surged nearly 10%, breaking out of this range, and reaching resistance where the stock gapped down to last year. There is plenty of room to run to the upside if the stock manages to break above this critical resistance level.
The yield on the dividend is far from high at just 0.66%, but Activision Blizzard has been paying a consistent and growing annual dividend since 2010; increasing on average over 10% per year in this time. While the opportunity to catch the annual $0.37 per share dividend has passed as the stock went ex-dividend back in March (as it has almost every year), the company is forecasted to raise next year’s dividend up to $0.40.
Looking forward, the company has plenty of catalysts that could prove beneficial to both the stock price as well as earnings. For starters, the company has some seasonal strength as consumers purchase their games heading into the holiday season; Q4 revenues have generally been the annual peak for the company. Additionally, the fall is usually when the company releases some of its biggest franchises. For example, the company’s newest installment of World of Warcraft was just released in the past few weeks with a warm reception and another major title, Call of Duty, is scheduled to come out in October.