Buying What's Out of Favor: Activision Blizzard and Electronic Arts

When it comes to gaming companies that are actual investments and not just another one-trick pony, it narrows down to the two best players with billion dollar market caps: Electronic Arts Inc. (NASDAQ:ERTS) and Activision Blizzard, Inc. (NASDAQ:ATVI).  Why buy now?  Both of these stocks are less than $1 away from their 52-week lows.

ERTS AND ATVI TRADING NEAR LOWS
Activision Blizzard, Inc. (NASDAQ:ATVI) shares are at $10.65 today, its 52-week range goes from $9.93 to $13.34.  Electronic Arts Inc. (NASDAQ:ERTS) shares are at $16.25, its 52-week range: $15.70 to $26.64.  These stocks have been range bound these past 12 months, just check out the charts below, they seem stuck but the relevant point is that for bottom feeders the time may be soon to act if you believe they can trend back up.

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THE NUMBERS
(MySmartTrend.com) Electronic Arts (ERTS) had sales growth of 13.8% during the last fiscal year. The company has reported $3.7 billion in sales over the past 12 months and is expected to report $4 billion in sales in the next fiscal year.  Activision Blizzard (ATVI) had sales growth of 33.3% during the last fiscal year. The company has reported $4.6 billion in sales over the past 12 months and is expected to report $4.8 billion in sales in the next fiscal year.

Activision Blizzard has a short interest ratio of 0.7 based on average daily volume of 18 million shares and 12.9 million shares short. That equates to 1% of the 1.2 billion shares outstanding. Electronic Arts has a short interest ratio of 1.7 based on average daily volume of 8 million shares and 14.2 million shares short. That equates to 4.3% of the 327.8 million shares outstanding.

I will spare you my 2 cents on would-be investors for these two companies as their outlooks have already disappointed the Street and thus why they are trading near 12 month lows.  It would be great if these stocks would hit new lows for us traders standing on the sidelines, thanks to less than stellar April video game sales we may all get that chance.  April sales fell 26%, the market's sharpest decline since last July.

Market research firm NPD Group said U.S. sales of videogame hardware, software and accessories for the month fell to $766.2 million from $1.03 billion a year earlier. Anita Frazier, an analyst with the firm, said it was the fourth-largest year-over-year percentage decline ever.  NPD blamed a drop in demand for console games that were released in March as well as declining sales of Nintendo Co.'s DS portable game device. Software sales fell 22% to $398.5 million, NPD said, a significantly bigger decline than analysts' estimate of a 5% drop.

The weak results come as investors have expressed concern about the impact of casual games that are inexpensive—or even free—and are popular on sites such as Facebook and on devices such as Apple Inc.'s iPhone and iPad.  Results for April could fuel those worries. NPD said casual, family-oriented titles for videogame consoles and portable game devices around themes like music, sports and fitness comprised a smaller percentage of overall game sales than a year earlier. (source: wsj.com)

BUYING WHAT'S OUT OF FAVOR
Do you really think this decline will last forever?  Just food for thought as I would recommend taking a look at Electronic Arts Inc. (NASDAQ:ERTS) and Activision Blizzard, Inc. (NASDAQ:ATVI) now less than $1 away from their 52-week lows.  I would love a chance to buy these stocks should they hit new lows, the companies have every intention to restore shareholder value, thus game on.

CHARTS: ERTS & ATVI

Disclaimer: No positions in any of the securities mentioned in this publication.