If the economy goes into recession, video game stocks could be a good defensive game, a Wall Street analyst said Wednesday.
In a note to clients, BMO Capital Markets analyst Gerrick Johnson banged the video game stock drum Electronic Arts (EA), Take Two Interactive Software (TWO) a Activision Blizzard (ATVI).
“Video game stocks were seen as ‘Covid winners’ in 2020 and ‘reopening losers’ in 2021,” Johnson said. “We think they could be the winners of the 2022 recession for many of the same reasons they were the winners of Covid two years ago.”
Amid economic uncertainty, inflation and high gas prices, people are finding less travel, eating out and other activities from home possible, he said. As people spend more time at home, it may lead to more video games, Johnson said. During the Covid-19 pandemic, consumers spent more on video games as they hid on the spot.
EA shares in the stock market fell 1% today to close at 129.03. Take-Two dropped to 128.60. Activision lost 0.5% to 75.70.
Video game stocks are recovering
“Video games are one of the cheapest forms of entertainment,” Johnson said. “We think investors should return to these ‘Covid winners’ and look at these measures as areas of defense in a very uncertain economic environment.”
Video game stocks have been rising lately. The IBD computer software and gaming industry is now ranked 83rd out of 197 groups tracked by IBD. Six weeks ago she was 172nd. News and rumors of mergers and acquisitions have strengthened the group in recent weeks.
Johnson ranks Activision, EA, and Take-Two among the best video game stocks.
He relies on Electronic Arts for his hit Apex Legends and refreshed EA Sports games.
Less options for two
Take-Two has fewer options in the near term, but it should continue to thrive with its major franchises, with new titles like Marvel’s Midnight Suns, The Quarry, and Rollerdrome, he said. Johnson said she should be exonerated from Zynga’s recent mobile games acquisition.
Even though Microsoft (MSFT) is in the process of buying Activision, investors can still benefit from the transaction amid uncertainty over regulatory approvals, he said.
“The stock is trading nearly $20 below its trading price of $95 (per share), up about +25% if Microsoft’s acquisition closes by June next year,” Johnson said. “Although we are not antitrust experts, we see a high probability that the deal will close.”
Even if the agreement is suspended, Activision shares likely have the lowest limit of 50 years, he said. In addition, the company has solid business prospects, he said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer tech, software, and semiconductor stocks.
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