If you're a 40-year-old investor, you're probably not planning on retiring for another 20 years or more. While that may be bit of a downer for those looking forward to the freedom that retirement can bring, the positive is that it gives you more than two decades to grow your investments as you prepare for that fateful day.
This ultra-long-term investment horizon can be a major advantage for you over other investors -- if you use it wisely. And one of the best ways to do so is to seek out stocks with growth opportunities that span across many years -- and even better, those that are fueled by major secular trends.
Read on to learn more about two such businesses.
Image source: Getty Images.
As two of the largest video game publishers, Activision Blizzard (ATVI) and Electronic Arts (EA 1.50%) are well-positioned to profit from two major global trends: surging demand for digital games and the exploding growth of esports.
Video games are one of the most popular forms of entertainment in the world, and the industry's economic impact is staggering. In fact, the global games market is expected to produce $108.9 billion in total revenue in 2017, up from $101.1 billion in 2016, according to market intelligence company Newzoo. Moreover, Newzoo forecasts that by 2020 the industry will exceed $128 billion in sales.
The growing attraction of gaming among people of nearly all ages has been a boon for both Electronic Arts and Activision Blizzard in recent years, as both companies have seen their stock prices surge along with their sales and cash production.
Activision Blizzard's game portfolio spans across the PC, console, and mobile markets, and includes massively popular franchises such as World of Warcraft, Overwatch, Destiny, Call of Duty, and Candy Crush, among others. Incredibly, people spent about 40 billion hours playing Activision Blizzard's games over the past year.
Fellow industry titan Electronic Arts dominates the sports game market with FIFA -- the best-selling console title in the world in 2016 -- and its stalwart Madden NFL franchise. Additionally, Electronic Arts holds exclusive rights to produce games related to the megapopular Star Wars universe, and the company has a strong-selling shooter game of its own in Battlefield.
Better still, Electronic Arts and Activision are benefiting from the trend toward digital distribution. Digital downloads are less costly than shipping physical game discs, and they allow for additional monetization strategies such as sales of expansion packs, upgrades, and other in-game content -- all of which helps to boost margins and overall profits for the major game makers.
ATVI Gross Profit Margin (TTM) data by YCharts.
Long runways for growth still ahead
In addition to these powerful trends, the global phenomenon that is esports should continue to help fuel Activision and EA's profits well into the future. Despite several years of torrid growth, esports' ascent may be just beginning. The global audience for esports surged 36.6% to 323 million in 2016, and Newzoo projects that it will exceed 589 million worldwide by 2020.
Activision is moving aggressively to seize this opportunity. The company recruited a team of well-respected sports media executives -- including former ESPN and NFL Network CEO Steve Bornstein -- to lead its esports division. It then signed a live-streaming deal with Facebook to broadcast its most popular esports games on Facebook Live. And now, Activision is building an entire professional esports league around its Overwatch franchise. The game's growth has been impressive since its May 2016 release, with already more than 30 million registered players and $1 billion in sales. If the popularity of Overwatch continues to surge, Activision's new esports league could eventually develop into a gold mine for investors. In fact, Activision CEO Robert Kotick believes that esports leagues could eventually rival traditional sports leagues like the NFL and NBA in terms of revenue generation.
Not to be outdone, EA's competitive gaming division recently inked deals with both the NFL Network and ESPN to expand coverage of its esports tournaments. ESPN in particular has been ramping up its coverage of competitive gaming on its website and family of TV channels, and these deals should help to further strengthen esports' -- and EA's -- presence on the major sports networks.
Worth the price
After years of stellar gains, Activision's and Electronic Arts' stocks no longer trade in the discount bin. At about 24 and 22 times forward earnings estimates, respectively, their shares reflect the (rightful) optimism surrounding these businesses, but these P/E multiples are not unreasonable considering that Activision and EA are expected to grow earnings at annualized rates of about 18% and 15%, respectively, over the next half-decade. It's also very possible that these growth forecasts prove to be conservative -- particularly if esports catches on faster than expected -- which would make their current share prices even better bargains than they appear.
All told, Activision Blizzard and Electronic Arts offer investors an excellent way to profit from the long-term growth of the global video game market. Thus, investors who buy shares in these video game titans today are likely to be well rewarded in the years -- and potentially decades -- ahead.
