The negative roar of the crowd is starting to sound like that bear that rips apart Leonardo DiCaprio in the “The Revenant.” The worse the selling seems to get, the more shrill the call. We are being told it’s just like 2008, and it may be like the crash like 1929. The fact of the matter is that the leading economic indicators have yet to turn negative, and the bottom line is the 2008-type problem now lies in the energy industry, not with the U.S. consumer.
In some new research reports, Jefferies makes the case that not only is this nothing like 2008, the firm also notes that the falling oil and then in turn overall energy costs are a huge boon to the U.S. consumer. With consumer purchasing almost 70% of gross domestic product, and prices across the board not exploding, consumption should stay solid.
We screened the Jefferies research data base for stocks that should excel in a consumption environment. All four are rated Buy.
Activision Blizzard
This company reported outstanding third-quarter earnings, made a huge acquisition and is a franchise pick at Jefferies. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.
The company develops and publishes interactive entertainment software products through retail channels or digital downloads, as well as downloadable content to a range of gamers. The Call of Duty franchise has propelled earnings for this industry powerhouse for years, and “Call of Duty: Black Ops 3” came out just in time for the holidays. It was one of the top-selling games over the three-day Black Friday and Christmas selling periods.
The big news last fall was the company’s purchase of Candy Crush saga creator King Digital Entertainment. Most of Wall Street thinks the buy is an outstanding move for the company, and specifically the synergies between the two companies is cited. Many analysts feel that the key to unlocking some monster value is creating and cross-promoting the Activision product inside the King Digital mobile distribution network.
Some on Wall Street feel the guidance Activision gave when it last reported is very conservative. They also think the content it will release in 2016 is outstanding and not fully reflected in the guidance. The growth in the most recent quarter was particularly impressive given two challenges: the strong dollar and unfavorable comparisons to the prior year quarter. Much of that growth was fueled by Destiny, Heroes of the Storm and Hearthstone, which now have 70 million registered players combined. The three titles have generated over $1.25 billion in non-GAAP revenues to date.
The analysts don’t expect much AAA virtual reality product from the company until 2017, as many of the controls have to be rethought. With that in mind, Activision will be a leader.
Investors receive a 0.6% dividend. The Jefferies price target for the stock is $47. The Thomson/First Call consensus price target is $42.01. The stock closed Friday at $34.91.
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