The shares of Activision Blizzard Inc (ATVI) and Electronic Arts Inc. (EA) have struggled since peaking in the late summer of 2018. Both of these stocks have seen their prices drop by around 30% since that time. But now, some hedge funds are making big bets that both of these stocks rebound from these depressed levels.
Both stocks made it to the WhaleWisdom Heatmap for the third quarter of 2019. Additionally, they both made it to the WhaleWisdom Whale 100 Index due to the bullish activity among investors during the third quarter. It could merely be a bet on the individual companies, or it could be a bet that the video gaming sector is ready to make a comeback in 2020.
Moving Up on the Heatmap
Activision Blizzard landed at eight on the WhaleWisdom Heatmap, which was up sharply from its ranking of 88 in the second quarter. Of the 150 hedge funds tracked for the heat map, 20 of them held the stock in their portfolio. Overall, 3 of the 20 funds held the shares among their 10 top holdings. Meanwhile, during the quarter, 13 funds increased their position in the stock while 5 reduced their position.
In contrast to Activision Blizzard, Electronic Arts saw its ranking in the Heatmap fall to 84 from its previous rank of 13. Overall, 17 funds held the stock, with three funds holding the stock among their top 10 positions. In total, 13 funds were increasing their position in the stock while 5 reduced their positions.
Industry Selling Overall
However, while some of the best hedge funds were adding to their shares of both stocks, the broader industry was selling their shares in them. During the third quarter, the aggregate number of 13F shares held of Activision sank by 3.6% to 68.1 million, while falling by 11.4% to 34.0 million for Electronic Arts.
One reason why investors’ may be moving into these two stocks heading into 2020, is the prospect for growth. Revenue for Activision is estimated to have declined in 2019 by 12.3%, but that trend is seen reversing in 2020. Analysts currently forecast Activision to see revenue growth of almost 9% in 2020 to $6.9 billion. Additionally, earnings are expected to rise in 2020 by nearly 12%.
Electronic Arts’ growth is not expected to be strong, with the company already in the third quarter of fiscal 2020. Revenue in fiscal 2020 is expected to rise by 4.7% to $5.2 billion, followed by growth of 3% in fiscal 2021. Meanwhile, earnings growth in fiscal 2021 is forecast to rise by around 5% to $4.91
Both stocks trade for a similar one-year forward PE ratio, with Activision at 20.5 and Electronic Arts at 21.9. However, Activision’s faster growth rate, and lower PE multiple may make it the more compelling option, currently.