Gaming stocks have been under pressure, which is counterintuitive to what many investors may have expected. If a recession is around the corner, one would think that video games would be an outlet for consumers. Many would argue that they’re always an entertainment outlet. Yet, these stocks have suffered, leaving investors to wonder: “What are the best gaming stocks to buy?”
That’s actually a fairly broad question, as gaming has the potential to go beyond actual game-makers. In any regard though, there are some secular tendencies to the video game industry, as gamers will play in good economic times and bad.
That being said, if we do find ourselves in a global recession, gaming will come under pressure. That’s as consumer spending will no doubt take a hit. If it comes to putting food on the table or paying rent versus buying new games or making micro-transactions, consumers’ priorities tend to (and should) favor the former rather than the latter.
With that said, let’s look at the best gaming stock to buy in July.
Best Gaming Stocks: Microsoft (MSFT) and Activision Blizzard (ATVI)
This is an interesting combination, as Microsoft (NASDAQ:MSFT) is in the midst of acquiring Activision Blizzard (NASDAQ:ATVI). The former agreed to buy the latter for $95 a share, or roughly $69 billion, earlier this year.
Despite the deal, Activision stock is still trading in the mid-$70s or about 20% below the offer price. If investors want to buy the best gaming stocks, they can consider one that has already agreed to a buyout price significantly above current levels. Heck, even Warren Buffett’s firm has been buying, too.
However, buying Activision Blizzard leaves investors open to the risk that the deal falls apart and the stock faces more losses. If that’s the case, investors can opt for Microsoft, which has been one of the best-performing mega-cap tech stocks in the market.
Aside from its many attributes – robust balance sheet, better profit margins than FAANG, strong cash flow, etc. – it’s a formidable gaming company too. It owns the Xbox console, ZeniMax Media (which owns Bethesda, the maker of many popular games), as well as the popular gaming franchises Halo and Minecraft.
If it adds Activision, it will be one more feather in Microsoft’s gaming cap.
Advanced Micro Devices (AMD)
Perhaps not considered an exclusive gaming company, Advanced Micro Devices (NASDAQ:AMD) absolutely should be mentioned on the list of the best gaming stocks. The company’s GPUs and graphic cards are used by millions of gamers around the world and that’s likely to remain the case for years to come.
The company’s products have gained in popularity and capability over the years, making it a formidable player in the world of graphic cards.
Like Microsoft though, AMD has diversity. The company caters to a number of different end-markets, making it one that does benefit from gaming but can also lean on other industries and sectors to diversify its business.
So far, it’s working.
Analysts expect roughly 20% earnings growth in 2024 and 2025, after roughly 12.5% growth next year. On the revenue front, estimates sit between 13% and 15% through 2025 (after this year). Better yet, consensus estimates have been rising this year, despite the stock price falling 55% from peak to trough.
Take-Two Interactive (TTWO)
Take-Two Interactive (NASDAQ:TTWO) is a well-known game-maker. It’s responsible for games like Grand Theft Auto, Red Dead Redemption, NBA 2K and more. It’s been a bumpy couple of months for the stock price, which topped out in early 2021. At the recent low, shares were down more than 50%.
Based on this year’s earnings estimate of roughly $5 a share, TTWO stock trades at 25x earnings. However, if we look at estimates for next year, which calls for earnings of roughly $8 a share, the valuation plunges down to 15x earnings.
If achieved, it will represent growth of almost 60%. In 2024, estimates call for another strong year of growth, at 25%. Admittedly, revenue growth estimates are a little lumpy, but at least it’s all positive through 2026.
Take-Two is clearly a pure-play pick when it comes to the best gaming stocks. While it can be volatile, this is one of the premiere game-makers in the business.
— Bret Kenwell
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Source: Investor Place