Goldman Sachs Says 'Buy' This Video Game Stock

Activision Blizzard shares have been outperforming all year

Dec 12, 2017 at 9:48 AM
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Goldman Sachs raised its rating on Activision Blizzard, Inc. (NASDAQ:ATVI) to "buy" from "neutral," saying the video game stock gives traders the opportunity to own a "high-quality asset at a discounted price relative to its peers." The brokerage firm also increased its 2019 and 2020 estimates for Activision on strong expectations for the company's pipeline, and lifted its price target on the security to $73 from $67 -- in record-high territory.

In reaction, ATVI shares are up 0.6% out of the gate to trade at $63.56. This positive price action is just more of the same for the equity, though, which was boasting a 75% year-to-date gain heading into today's trading. More recently, the shares pulled back after hitting an all-time peak of $67.03 on Nov. 3 -- pressured by the broader tech selloff -- but took a strong bounce from their 200-day moving average.

What's impressive is Activision Blizzard's ability to rally into uncharted territory amid a steady stream of selling pressure in recent months. Since early August, short interest is up more than 79% to 15.73 million shares -- the most since mid-May. Should ATVI continue to outperform on the charts, a capitulation from some of the weaker bearish hands could translate into tailwinds for the shares.

Those looking to bet on another leg higher for ATVI stock may want to consider buying short-term calls. The stock's Schaeffer's Volatility Index (SVI) of 26% ranks in the 16th annual percentile, indicating low volatility expectations are being priced into near-term contracts. Plus, Activision Blizzard stock's 30-day at-the-money implied volatility skew of 8.8% is perched in the elevated 82nd percentile of its annual range, suggesting calls are cheap at the moment, relative to puts.

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