In this article we present the list of Top 10 Video Gaming Stocks to Buy Now. Click to skip ahead and see the Top 5 Video Gaming Stocks to Buy Now.
The video game industry has been one of the big winners of the pandemic, achieving record sales during this year’s second and third quarters as housebound people around the world turned to gaming for stress relief and some much-needed human interaction (even getting trolled by a 12-year-old has its charms when you’re living like a hermit).
Video games sales rose by a record 30% year-over-year in Q2, hitting $11.6 billion according to NPD Group, which included a 57% surge in console sales. That performance all but obliterated historical trends, which suggested that this would be a down year for gaming given the looming release of new consoles by Sony Corporation (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) in Q4. Research and Markets now predicts sales to hit $58 billion this year, a 41% jump from 2019.
Unsurprisingly, video game stocks have done well in 2020, with major industry players like Electronic Arts Inc. (NASDAQ:EA), Activision Blizzard Inc. (NASDAQ:ATVI), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) all posting double-digit gains this year. All three continue to trade at very reasonable forward multiples of between 20x-29x earnings and all three are expected to grow earnings by 13% or more over the next five years.
Nor is it just the biggest gaming publishers that are benefiting from pandemic tailwinds. The Global X Video Games & Esports ETF (NASDAQ:HERO), which tracks 41 global companies that generate the majority of their revenue from the gaming industry, has surged by over 71% this year. The ETF’s top holding, which also happens to top our list of the top video gaming stocks to buy now, has gained an eye-popping 350% this year.
To compile our list, we took the 41 companies from the HERO ETF and sorted them based on hedge fund ownership data from among the exclusive group of 800+ funds that Insider Monkey tracks as part of its market-beating investment strategy.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. That doesn’t mean there isn’t money to be made off their consensus stock picks. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
The HERO ETF only includes companies that generate about half their revenue from the gaming industry, so several prominent industry players were not considered for this list, namely console developers Sony Corporation (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT).
While gaming is now Sony’s biggest division, it still accounts for far less than 50% of the Japanese tech giant’s revenue, as Sony has multiple other large divisions like music, electronics, imaging, and even financial services. In the case of Microsoft, its Xbox division accounts for only a tiny fraction of the company’s revenue.
Now then, let’s check out the Top 10 Video Gaming Stocks to Buy Now, beginning with the first of several mobile game developers. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey.
10. Glu Mobile Inc. (NASDAQ:GLUU)
Hedge fund ownership of mobile games developer Glu Mobile Inc. (NASDAQ:GLUU) surged by 94% in Q2, a trend that was seen across several other gaming stocks. Q3 was a different story however, as 26% of hedge fund shareholders unloaded their GLUU positions.
Glu is a leading developer of free-to-play mobile games that contain in-game purchases, which has become the standard in the mobile industry. The company has a number of partnerships with companies like The Walt Disney Company (NYSE:DIS) that allow it to develop popular licensed games based on everything from celebrities like Gordon Ramsay, to the WWE. The late Q1 release of Disney Sorcerer’s Arena helped Glu blow past bookings estimates in Q2 and deliver a strong performance in Q3, during which bookings rose by 22% from a year earlier.
9. SciPlay Corporation (NASDAQ:SCPL)
SciPlay Corporation (NASDAQ:SCPL) was the social gaming division of casino software developer Scientific Games Corp (NASDAQ:SGMS) before being spun off into its own public company last May. The stock received relatively muted interest from hedge funds until the second quarter of this year, when there was a 53% jump in SCPL ownership owing to the aforementioned pandemic tailwinds. Those tailwinds contributed to a 14.6% Q2 revenue surge for social casinos.
At the time of its spinoff, billionaire hedge fund manager and SGMS shareholder David Einhorn of Greenlight Capital noted in his Q2 2019 investor letter that SCPL shares were trading at just 12x 2020 earnings estimates despite boasting earnings growth that was expected to surpass 20% annually through 2022. He pointed out that SciPlay also has a notable advantage over its competitors through its ongoing partnership with Scientific Games (which retains a large ownership stake in SCPL), reducing its R&D expenditures and boosting its margins. SCPL shares have rallied by 93% from their pandemic lows but still trade below their IPO price of $15.25.
8. Bilibili Inc. (NASDAQ:BILI)
Hedge fund ownership of Bilibili Inc. (NASDAQ:BILI) has risen for four consecutive quarters, increasing by 106% during that time. Those shareholders have been richly rewarded with gains of 200% in 2020 as the Chinese video streaming platform continues to rapidly expand, hitting 197 million monthly active users and 53 million daily active users in Q3, which represented 54% and 42% year-over-year increases respectively. Bilibili grew its game revenue by 37% year-over-year in Q3.
Bilibili made a big splash last December when it landed the exclusive Chinese broadcasting rights to the League of Legends World Championships. Bilibili also owns League of Legends and Overwatch esports teams in China. In addition to its large gaming presence, Bilibili is also a growing producer of Chinese anime, with plans to launch 40 titles across 2020-2021.
7. NetEase, Inc (NASDAQ:NTES)
NetEase, Inc (NASDAQ:NTES) was one of the rare gaming stocks that hedge funds were selling during Q2. Q3 was a different story, as there was an 18% jump in ownership to hit a 3-year high, with David Harding’s Winton Capital and Paul Tudor Jones’ Tudor Investment among the new buyers.
NetEase is in the midst of a strong 2020, as its revenue growth has accelerated over each of the first three quarters of this year, hitting $2.75 billion in Q3, a 27.5% jump from a year earlier. In addition to its stable of popular mobile and PC games, NetEase has an impressive pipeline of games in development based on world-class properties like Pokemon, Diablo, Harry Potter, and The Lord of the Rings, which should ensure continued future growth.
6. Zynga Inc (NASDAQ:ZNGA)
Finishing up the first-half of our list is Zynga Inc (NASDAQ:ZNGA), one of the top heavyweights in the early social gaming boom. Zynga fell on hard times after its early success and hedge funds fled the stock, with ownership bottoming out in early 2016. There’s been a steady increase in hedge fund ownership since early 2018 however as Zynga begins to find its footing again in the rapidly evolving gaming space.
In its Q2 investor letter, Brown Advisory, which owned $181 million worth of ZNGA shares on September 30, expressed confidence in Zynga’s organic pipeline of games and anticipates that the company will be able to achieve double-digit growth over the next five years alongside expanding margins. Zynga grew its MAU count by 23% year-over-year to 83 million in Q3.
Click to continue reading and see the Top 5 Video Gaming Stocks to Buy Now. Disclosure: None. Top 10 Video Gaming Stocks to Buy Now is originally published at Insider Monkey.