Electronic Arts (NASDAQ: EA)
Analyst Benjamin Soff took over coverage of video game stocks at Deutsche Bank and raised EA from hold to buy. In a note to clients on Wednesday, Soff stated that the company could be one of the best performers in the group.
“EA has the strongest organic growth outlook in the group this year, driven by: continued strength in Apex Legends and other live services, a new Battlefield title this holiday season… growing scale in mobile with the potential to significantly expand this business in the coming years, and additional benefits from recent M&A,” according to the note.
In 2021, the stock fell slightly and has been trading sideways for the past three months. This is similar to the performance of some other video game stocks this year, after the industry boomed during the pandemic last year.
However, as the economy normalizes, the video game industry should begin to resemble a growth industry once more, according to Deutsche Bank.
“We believe that 2021 will be a period of digestion for video games, rather than the start of a downward trend. “We argue that the pandemic’s strong secular growth and structural changes should continue to provide fundamental tailwinds for the industry for the foreseeable future,” the note said.
Deutsche Bank also raised its price targets for Activision Blizzard and Take-Two, both of which have Soff buy ratings.
Producers have withheld output as economies have begun to reopen. This has created a floor for prices while also raising concerns that supply may be unable to keep up with demand. The International Energy Agency reported earlier this month in its closely watched monthly oil market report that demand was 96.8 million barrels per day.
“There isn’t much spare capacity in the world. As the economy expands, supply and demand will tighten,” Cooperman added.
Energy stocks have recently been under pressure, and the sector is currently in correction territory, having fallen roughly 13% from its recent high on June 15. Despite this, the sector is up 27 percent for the year as oil prices have recovered.
Cooperman stated that he believes businesses will be “extremely cautious” about how they spend their money, especially as ESG investing gains traction.
Cooperman purchased Cabot Oil & Gas and Paramount Resources on Monday during the sell-off.
′′[Paramount Resources] could be debt-free in a year, selling at less than four times cash flow, and have a substantial resource base,” he said.
Are tech stocks overvalued?
This is due to incredibly low bond yields, according to the chairman of the Omega Family Office on “Halftime Report.” “When you look at Google, when you look at Facebook, when you look at Microsoft, when you look at Amazon, if you believe the economy will grow and interest rates will stay where they are, they are not overvalued.”
“the people who run that are a hell of a lot smarter than me.” They keep me up to date on technology.”
“I have a significant stake in Microsoft. I feel the same way about them. I have a decent stake in Amazon and a small stake in Facebook. “I missed that one,” he admitted.
It finished Monday at 1.18 percent after a rough session for equities.
“With the exception of bonds, nothing is overvalued in today’s interest rate environment,” Cooperman said.
Growth-oriented firms, many of which are in the technology sector, are perceived to be more sensitive to higher interest rates. This is due to the fact that low borrowing costs help fuel their business expansion, as well as changing a key variable used in discounting future cash flows, which can have the effect of compressing valuations.
Cooperman stated several times during the interview on Tuesday that he wanted to avoid bonds.
“I am not shorting U.S. government bonds, which I believe are grossly overpriced and will be a good short one day. But I’m staying away from it for the time being. It’s like looking at a rattlesnake; you see him curled up in the corner and kick it to see if it’s alive. I believe the best course of action is to avoid it entirely. I don’t want to be a bondholder.”
On Tuesday, the Dow Jones Industrial Average, S&P 500, and Nasdaq were all up about 1.6 percent. They were recovering from an aggressive sell-off on Monday, when the Dow dropped 2.1 percent, its worst day since October, with shares of all 30 member companies closing in the red.
Cooperman said last month that he planned to “stock pick my way to success,” raising concerns about the market’s overall benchmarks. “To be honest, stocks are the best place to be in terms of my long-term outlook. But I wouldn’t put too much faith in the major averages,” he said on June 29.
Cooperman reiterated that view on Tuesday, adding that “the conditions for a bear market are simply not present,” and that he is still “reasonably fully invested.”
“I am pleased with my possessions. “I’m having no trouble finding things I want to own,” he said, citing Fiserv as an example. He compares the financial technology company to PayPal or Square, but Fiserv trades at a significantly lower multiple.