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Video Game Stocks in Focus on Solid Sales Report from NPD


Heading towards the holiday season, it might be a good idea to consider the video game sector, especially when we have a positive sales report from research firm, NPD Group.

For the last few quarters, video game sector sales have been muted given tough year-over-year comparisons, a weak macroeconomic backdrop and a sluggish market for hardware and accessories. But thanks to titles like Madden NFL 17, No Man's Sky, Deux Ex: Mankind Divided, Grand Theft Auto V, Overwatch and a few others, sales finally picked up in August. This was despite the fact that August has not historically been a ‘peak’ month for splurging on games.

Per the report, in Aug 2016, video game sales rose 1% year over year, finally reversing the trend of muted demand and conservative spending. Consolidated sales in the month were $573.4 million driven by the surge in software demand. However, a decline in hardware and accessories sales partially offset the gain from robust videogame software demand. Sales in videogame software (including digital estimates) rose 8% over Aug 2015 to $273.7 million while the software sales for PC games increased 18% in the month to $14.2 million.

Taking into consideration this positive trend and the approaching holiday season, investors in the space can make some good bets. This is because the holiday season is the most important time of the year for video game stocks. In fact, most of the companies generate maximum sales in this quarter compared with the rest of the year. These companies go by the idea of ‘saving the best for the last’ and reserve their most important titles for launch in the final quarter of the year.

Let’s have a look at a few key picks, which, in our opinion, have placed themselves well enough to benefit from the spending windfall.

Video Game Stocks to Bet on Now

Electronic Arts Inc.EA

The company has already been riding on the demand wave of Madden NFL 17 and other popular titles like Battlefield, Titanfall, Star Wars andEA SPORTS. This will continue to fuel top-line growth. The company has been the primary beneficiary of the ongoing shift from physical to digital versions of video games.It has a strong pipeline comprising NHL 17, FIFA 17, Battlefield 1 and a new Titanfall game among others for this fall.

The company carries a Zacks Rank #2 (Buy)and has a long-term EPS growth rate of 16.1%

Activision Blizzard ATVI

Activision has been striving to become a broad-based entertainment company. Through the acquisition of Candy Crush maker King Digital Entertainment, the company has solidified its presence in the lucrative mobile games market. Per the NPD report, as many as three games from Activision, Overwatch, Call of Duty: Black Ops III and Destiny: The Taken King, were among the top 10 performing titles of August.

Earlier this month, the company held a Call of Duty XP event in California where it showcased its upcoming game titles like Call of Duty: Infinite Warfare. In addition, gamers also got a glimpse of titles like Call of Duty: Modern Warfare Remastered and Call of Duty: Black Ops III (both in multiplayer mode). Call of Duty is one of the most important revenue generators for the company. The response to the event has not only lifted investors’ sentiments but also raised expectations for the upcoming titles. The event highlighted that the company is well placed to gain from the approaching holiday season binge.

Activision has a has a long-term EPS growth rate of19.8%. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Take-Two Interactive Software Inc.TTWO

The company expects to benefit from its popular franchises like GrandTheft Auto, Tales from the Borderlands andBattleborn. Even after two years, Take-Two’s Grand Theft Auto V continues to be a roaring success and held the fourth spot in the last month’s top performers list by NPD. Take-Two’s margins have been benefiting from increased sales of the digital version of the games. The company continues to expect growth in digital revenues driven by higher sale of full game downloads and rise in recurrent consumer spending.

The company carries a Zacks Rank #2 and has a long-term EPS growth rate of 9.8%.

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