Market Overview

Pachter: Video Game Stocks Are 'Relatively Recession-Proof'

Pachter: Video Game Stocks Are 'Relatively Recession-Proof'

Wedbush Securities analyst Michael Pachter joined Benzinga’s PreMarket Prep trading show this week to discuss several topics, including the downturn in video game stocks and several other entertainment-related companies under his coverage.

Game Over?

Equities have taken a beating over the past couple of months, and video game stocks are no exception. Since Oct. 1, Take-Two Interactive Software, Inc (NASDAQ: TTWO) is down 28 percent, Electronic Arts Inc. (NASDAQ: EA) is down 36 percent and Activision Blizzard, Inc. (NASDAQ: ATVI) is down 47 percent.

Pachter said the knee-jerk reaction is likely unwarranted.

“There’s no question that video game publishers are relatively recession-proof,” he said. “If we have full employment and a downturn in the economy, it’s going to be more because consumers are scared, and that really doesn’t impact video game purchases.”

Buying Opportunity

Pachter said he is particularly bullish on Activision Blizzard, which has been one of the hardest-hit stocks in recent weeks.

“They’re going to make $2.58 this year. If they miss that, they’re going to make $2.55. Next year, in the worst-case they’re going to make $2.35 or $2.40, and the stock is trading at under a 20 times multiple on kind of a worst-case number with much better growth prospects going forward,” the analyst said.

Activision Blizzard has an impressive lineup of games due out in 2020 and 2021 that should have any long-term investor excited, Pachter said. Traders should expect Activision to be a market leader one the market calms down, he said.

Other Entertainment Stocks

Pachter also has a Buy rating on GameStop Corp. (NYSE: GME) and said it offers a potential rebound trade and buyout opportunity.

“They haven’t replaced the CEO since May, and they announced recently they weren’t interviewing anybody because they are in discussions with private equity to sell the company. That tells me they’re closer to selling than investors expect,” he said.

The analyst is still bullish on Roku Inc. (NASDAQ: ROKU) following its recent pullback, but said the company’s yet-unproven platform business has much to prove.

“It’s hard for me to tell you this is my favorite pick because, again, I don’t know that they’re going to succeed. I just believe that what they say is plausible, they’re positioned to succeed, and I expect they will."

Pachter also said he expects strong box office numbers from AMC Entertainment Holdings Inc (NYSE: AMC) and a corresponding rebound in the stock.

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