2 Video Game Makers That Should Have A Prosperous 2012

 |  Includes: ATVI, TTWO
by: Bret Jensen

Consumers spend more money on videogames in the United States than going to the movies. This secular trend should continue given the technology advances in the space. Here are two game makers I like at current price levels.

Activision Blizzard (NASDAQ:ATVI) –

Activision Blizzard, Inc. publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. The company develops and publishes PC-based computer games and maintains its proprietary online-game related service, Battle.net. The company also develops, markets, sells, and supports role playing action and strategy games, as well as develops, hosts, and supports its online subscription-based games in the MMORPG category. (Business description from Yahoo Finance)

4 reasons I like Activision at $12 a share:

1. The company has beat earnings expectations for 11 out of the last 12 quarters. The average beat over consensus the last four quarters has averaged 38%. Earnings estimates for FY2011 and FY2012 have moved up over the last two months.

2. It has a fortress balance sheet with over $2.50 in net cash per share on its books.

3. ATVI is selling at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF. It has averaged 28% annual growth in EPS over the last five years.

4. The consensus analysts’ price target on ATVI is $16 and Robert W. Baird initiated the stock at “outperform” in October.

Take-Two Interactive Software (NASDAQ:TTWO) –

Take-Two Interactive Software, Inc. publishes, develops, and distributes interactive entertainment software, hardware, and accessories worldwide. The company develops and publishes software titles for various gaming and entertainment hardware platforms, including PlayStation3 and PlayStation2 computer entertainment systems, PlayStation Portable system, Xbox 360 video game and entertainment system, and Wii and DS systems, as well as for the personal computer and games for Windows. (Business description from Yahoo Finance)

4 reasons I like Take-Two Interactive Software at $13 a share :

1. The stock looks like it has established technical support at just under $13 (See chart).

click to enlarge
Click to enlarge

2. This is a stock for patient investors as its earnings will be driven primarily by the next release of Grand Theft Auto. That being said, analysts expect $2.47 a share in earnings and 60% growth in revenues next fiscal year based on this release.

3. Given its small 1.2B market capitalization and stable of hits (Red Dead Redemptions, 2K sports titles and Grand Theft Auto), this would make a logical acquisition for a larger entity in the sector.

4. The consensus analysts’ price target on TTWO is $18 and Hilliard Lyons initiated the stock as a “long term buy” in October.

Disclosure: I am long ATVI.