The market’s getting tighter but there are still some good value plays out there, says Allan Boomer of Momentum Advisors, who has named video game company Activision Blizzard (Activision Blizzard Stock Quote, Charts, News, Analysts, Financials NASDAQ:ATVI) as a strong pick going forward.
Activision Blizzard announced this week it has reached a settlement with the US Equal Employment Opportunity Commission (EEOC) over workplace harassment claims against the company, pledging to create an $18 million to compensate those who faced sexual harassment and/or were discriminated against in what former and current employees had labelled as a toxic workplace culture.
“There is no place anywhere at our company for discrimination, harassment, or unequal treatment of any kind, and I am grateful to the employees who bravely shared their experiences,” said Activision Blizzard CEO Bobby Kotick in a press release announcing the deal. “I am sorry that anyone had to experience inappropriate conduct, and I remain unwavering in my commitment to make Activision Blizzard one of the world’s most inclusive, respected, and respectful workplaces.”
The company will have more to deal with related to the harassment and workplace claims, however, as it is under investigation from the US Securities and Exchange Commission over unfair labour practices as well as a class action lawsuit from ATVI shareholders.
Activision’s share price has suffered in recent months, taking the stock from a record high of just over $103 per share in February to now down around $76. But Boomer says ATVI is looking like a buy at these levels.
“I think Activision is one of those stocks that I’m surprised it’s trading at an attractive multiple, given that it’s in such, I’m going to call it a sexy industry in video games. They’ve got some really big, big blockbuster titles, and it’s a cheap stock,” said Boomer, managing partner at Momentum Advisors, who spoke on BNN Bloomberg on Tuesday.
“Typically, when you look at companies that have any kind of story around them they’re trading at a premium, so I like that I can buy Activision and get a really small dividend but more importantly pay a discount to the market multiple to own those shares,” he said.
Activision bested its own guidance in its most recent quarter, the company’s Q2 2021, delivered last month, hitting $2.296 billion in revenue compared to its prior outlook of $2.135 billion. The company experienced growth across its Activision, Blizzard and King business segments, provoking a raise to management’s yearly outlook which is now calling for net revenues of $8.515 billion. Adjusted earnings for the second quarter were $0.91 per share, beating the consensus forecast of $0.76 per share.
Boomer said looking for value in the market is the right play at the moment as interest rates are threatening to rise, putting pressure on equities, but don’t expect the outsized returns experienced in last year’s record run.
“I think investors need to understand a couple things. One is that valuations matter. Two, it means that if I invest today I’m certainly not going to get yesterday’s return. In fact, I expect that you’ll get materially lower returns in the future, just based on the starting point,” Boomer said.
“You’ve got to ask yourself, am I okay with that [or] am I better off waiting in cash for a sale to happen which who knows when that sale is going to come or do you try to find some value by not just buying the entire index?” he said. “We’re doing a little bit of research, a little bit of homework, and trying to find some stocks that have a good story and are trading at a good price and I do believe there’s a lot of value out there.”
Activision shareholders did well last year as the market looked favourably on companies seen to be well-suited for the pandemic environment. Stocks in tech did very well as did e-commerce companies and gaming companies. ATVI returned 56 per cent last year, where the whole industry benefitted. The Solactive Video Games & Esports Index, which attempts to track the sector as a whole, was up 92 per cent in 2020 but has been trending downwards across 2021.
Activision Blizzard released an update last week on its corporate initiatives to improve its workplace, saying the company is actively engaged and compliant with government agencies tasked with workplace equity and harassment issues.
“Activision Blizzard has made a number of important improvements including significant changes to personnel, exiting a number of employees, and expanding compliance resources. In addition, the Company has refreshed its HR organization and, this week, will welcome a new Chief People Officer, Julie Hodges, who joins the Company from The Walt Disney Company. The Company has also expanded training, performance management, and anti-harassment resources,” the company said in a September 21 press release.