2011 was a big year for the video game industry. Activision Blizzard's
Facebook games developer Zynga
And Electronic Arts
Despite the lingering effects of the recession, the video game industry is seeing impressive demand. If you're interested in investing in video game stocks, here are some things to keep in mind when comparing companies:
- Recent stock performance: Stocks that have been going up in value may continue to do so as more investors agree with the positive sentiment, whereas poorly performing stocks probably have some headwinds investors are concerned about. But investors can get carried away -- if they are too negative on a company, eventually the stock will rise to correct its price to its "true value."
- Who's buying (or selling) the stock: There are certain investors that must report when they buy and sell stocks. One group is institutional investors, which include hedge fund managers and mutual fund mangers. They are considered "sophisticated investors" whose experience and access to research makes their trade decisions interesting to the rest of the market. If they are buying a stock, it is probably for a good reason, although keep in mind there is usually a time lag between when they purchase a stock and when they report that purchase.
- What products are coming out, and on what platform: Do you think Facebook will continue to be a solid platform for Zynga? Will Activision's "Diablo 3" sell as well as everyone thinks, or could it possibly beat estimates? These are important questions to ask when considering a video game maker.
Business section: Investing ideas
To help you in answering some of these questions about video game stocks, we ran a screen on the industry for stocks seeing the highest net purchases from institutional investors over the last three months. ("Net purchases" are the number of purchases less sales.) We express this number as a percent of the share float, or number of shares trading on the stock exchange, to standardize it.
Do you think these stocks are poised to do well in 2012?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Activision Blizzard: Publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Net institutional purchases in the current quarter at 18.6M shares, which represents about 4.1% of the company's float of 453.28M shares.
3. Shanda Games
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Data compiled by Eben Esterhuizen, CFA. Kapitall's Alexander Crawford and Alexander Crawford do not own any of the shares mentioned above. Institutional data sourced from Fidelity.