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Coronavirus stocks: Take-Two, Activision upgraded on gaming bull case

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With millions of people several weeks into staying at home to try to mitigate the coronavirus spread, you'd think video game stocks would be having a better year.

But so far, industry juggernauts Activision Blizzard and Take-Two Interactive Software have struggled to make meaningful strides. Call of Duty maker Activision's stock is up less than 1% year to date, while Grand Theft Auto publisher Take-Two's shares have lost nearly 2%. For comparison, the S&P 500 has lost nearly 18% in the same time frame.

Their resilience has not gone unnoticed, however. Wells Fargo analysts initiated coverage of Activision and Take-Two with "overweight" ratings on Tuesday, citing long-term secular tailwinds in the space and the strength of their respective franchises.

Some traders see more runway for these names, too.

"More people are staying at home, they're looking for entertainment and options at home, and with the client base that these two companies already have, I think this is going to be fantastic for them," Danielle Shay, director of options at Simpler Trading, told CNBC's "Trading Nation" on Tuesday.

"I think that the run into earnings at the end of this month is going to be a bullish one," she said.

Todd Gordon, managing director at Ascent Wealth Partners, said in the same interview that both Activision and Take-Two's stocks looked "well-supported" in the charts.

Activision's stock, for one, is "above both moving averages" on its weekly chart, which suggests a lower likelihood of the stock falling through those levels, Gordon said.

Its daily chart showed similarly supportive action, with Activision so far trading above both its 50- and 200-day moving averages, he said.

"Activision's the bigger of the two. It's a $46 billion market cap. They've got franchises like Call of Duty and Candy Crush. They have a better share of mobile gaming," Gordon said. "Activision is well-represented across multiple platforms including PC, console, gaming, stuff like that. So, we hold Activision in our global growth portfolio."

Take-Two was also a "really solid" pick, he said.

"I really like this longer-term chart. It's a smaller company, $14 billion market cap. It's got Grand Theft Auto, one of the best-selling video game franchises of all time. Wells Fargo's looking at, possibly, a release of GTA VI, which is interesting, so, they're putting about another $4 billion in net bookings on that one. So, there's a little bit of a premium in Take-Two," he said.

"I like the chart," Gordon said. "We don't hold this one personally, but I would look to add following the break higher."

Activision shares fell nearly 3% in Tuesday's trading session to $59.87. Take-Two shares fell about 1% to $120.06.

Wells Fargo analysts initiated coverage of Activision with a price target of $75 and coverage of Take-Two with a price target of $150.

According to FactSet, 83% of analysts have a "buy" or "overweight" rating on Activision, up from 79% a month ago. Wall Street is a little less bullish on Take-Two, with 69% of analysts rating it "buy" or "overweight" compared with 68% a month ago.

Disclosure: Ascent Wealth Partners owns shares of Activision Blizzard.



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