A couple months ago I ranked the old “Idea of the Month” stocks I had profiled in the order in which I’d personally buy shares — and today, I’m putting a bit of cash to work in Activision Blizzard (ATVI), which I had at the top of my list at the time.
The fundamental argument for these shares is roughly the same as it was a year ago when I first profiled the stock, and the long-term opportunity still seems compelling despite the fact that ATVI has been quite flat during the market’s huge run. ATVI shares are cheap largely because video game software unit sales are down from the expected levels, but I don’t believe that the video game console is “dead” and I still expect to see the industry as a whole grow over the coming years — and with Activision Blizzard I get the opportunity to buy the overwhelming leader in a growth industry at a relative bargain price.
I know that I have quite a bit of confidence in ATVI to grow over the next five years and continue to lead in console and subscription online games, but I don’t know if they’ll snap higher in the next six months. I have an additional buy order in to pick up more shares if they drop a little further, and I also have a buy order in to pick up what I consider to be some inexpensive LEAP options on the shares in case the market starts to value ATVI as the large growth stock that it is. Activision is a stock that has most of the key ingredients for sustained growth, but that isn’t priced for growth — a good combination in my book. It is possible that the “story” of video games will really stall, and that we are at a transformational point in gaming where game publishers become less profitable … but given the long term trends in favor of video gaming I think the current disappointment in sales is more of a hiccup, and that analysts who fret about iPhone games and facebook games permanently decimating the market share of Call of Duty, World of Warcraft and the like are overanalyzing. Hiccups give an opportunity to buy market leaders at low prices.
I’ve been known to be stubborn in the past, but I will be watching the industry as I hold these shares, ...