27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
More people playing video games and increasing numbers of digital downloads, along with the new console launch cycle, make 2020 a good year for the video game industry, a Stephens analyst said Tuesday.
In a look at the gaming landscape in the new year, analyst Jeff Cohen said he particularly likes "Assassin's Creed" publisher Ubisoft Entertainment SA (EPA:UBI), which is traded on the Euronext exchange in France, and which Cohen upgraded on Tuesday, and Electronic Arts Inc. (NASDAQ:EA).
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Those two stocks are cheaper and have more upside, Cohen wrote, than two others, Activision Blizzard, Inc. (NASDAQ:ATVI) and Take-Two Interactive Software (NASDAQ:TTWO).
See Also: Activision Blizzard Has Large Option Traders' Attention Following Bullish Analyst Commentary
The Analyst
Cohen upgraded Ubisoft from Equal-Weight to Overweight and raised the target price from $66.76 (€60) to $94.58 (€85).
He downgraded Take-Two from Overweight to Equal-Weight and lowered the price target from $145 to $110.
Cohen kept Overweight ratings on EA and Activision Blizzard, boosting EA's target price from $120 to $130 and Activision Blizzard's from $65 to $67.
The Thesis
New console launches from Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (NYSE:SNE) ahead of the 2020 holidays should be good for game publishers.
"We expect strong adoption and accelerating digital download penetration," Cohen wrote in a note. adding that game companies typically outperform the S&P 500 leading into and out of new console launches. "In our view, now is the right time to be buying shares of the video game publishers."
Cohen acknowledged new consoles will largely be bought as replacements, but said the total addressable market of gamers should keep expanding in light of favorable demographics, and the emergence of cloud gaming.
EA is Cohen's top pick in the console space, with several potential catalysts in the coming year, including the possibility of downloadable content in the "Star Wars Jedi: Fallen Order" game, an e-sports tournament for "Apex Legends, Respawn," and China growth.
Ubisoft: Strong Pipeline
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French publisher Ubisoft has a "robust game pipeline," for the upcoming year, Cohen said.
"We recommend buying shares of Ubisoft before a likely Assassin’s Creed reveal at the rumored PS 5 event in February," he wrote.
Activision: Esports Critical
For Activision Blizzard, 2020 may hinge, at least in part, on esports performance, including the Overwatch League, which has seen low viewership and other problems, Cohen said. Analysts will be watching closely, however, as a new city-based esports league for "Call of Duty," gets underway.
Acquisitions?
Cohen also said that 2020 could emerge as a year of acquisitions with large-cap tech focus on gaming and high levels of cash on public video game publishers' balance sheets.
Cohen said gaming insiders bring up several names as possible acquisition targets, including AT&T Inc.'s (NYSE:T) Warner Brothers Interactive Entertainment, Walt Disney Co's (NYSE:DIS) FoxNext Games and the privately-held, user-generated game creation platform Roblox.
While the virtual reality market remains small, the announcement of the upcoming VR first-person shooter game "Half-Life: Alyx" from Valve could boost interest, Cohen said. Cohen also noted that according to SuperData, consumer spending on VR software is set to more than double to $2.4 billion in the next four years.
Price Action
Take-Two investors appeared to agree with Cohen closing down by 1.18% to $126.93.
Activision Blizzard shares closed up 1.37% at $60.05.
EA shares closed slightly down by 0.22% trading at $109.58.
Ubisoft closed down slightly on the French EPA exchange at €65.52, or $72.93.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.