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Eager investors might assume that Microsoft (
NASDAQ:MSFT
) will take over Activision Blizzard (
NASDAQ:ATVI
), but there's an antitrust probe that hasn't been resolved yet. I am neutral on ATVI stock because it's not really a bargain at the moment and because Activision Blizzard might have to spin off some of its core assets in order to appease regulators.
Headquartered in California, Activision Blizzard publishes popular video games. The company's most popular gaming titles are
Call of Duty,
World of Warcraft,
Diablo,
Overwatch, and
Candy Crush.
Think about it: where would Activision Blizzard be today without those famous game titles? The company just wouldn't be the same, and it would be a shame if Activision Blizzard had to divest some of its most iconic game titles. Yet, this might actually occur sometime in 2023, and some of the company's shareholders probably wouldn't be pleased with that outcome.
Don't Count on Activision Blizzard for Strong Value or Dividends
Before we get to the main concern about Activision Blizzard, let's delve into the basics of ATVI stock. Even if the stock is down, this doesn't necessarily mean it's a bargain. Plus, Activision Blizzard stock isn't an ideal holding for income-focused investors seeking a strong dividend yield.
ATVI's valuation doesn't look cheap because its trailing 12-month non-GAAP P/E ratio of 22.5x is significantly higher than the sector median P/E of 14.9x. Also, on a trailing 12-month basis, Activision Blizzard's P/S (price-to-sales) ratio of 7.96x is much higher than the sector median P/S of 1.38x, while the company's P/B (price-to-book) ratio of 3.12x is far above the sector median P/B ratio of 1.9x.
In other words, according to several commonly cited valuation metrics, ATVI stock isn't a screaming bargain or even a pretty good deal right now. What about income-focused investors, though? Frankly, they won't get much yield out of Activision Blizzard. The company's 0.62%
annual dividend yield is better than nothing, but it's certainly not anything to write home about.
As we'll see in a moment, Activision Blizzard has strong support among the analyst community. That's important, and investors should take note of Activision Blizzard's Buy ratings. Still, there's a potential problem that prospective ATVI shareholders need to think about: At some point, maybe even this year, Activision Blizzard might end up losing some of its best-known gaming titles.
U.K. Regulators Poured Cold Water on Microsoft-Activision Blizzard Deal
Some folks might not care about whether ATVI stock is a bargain or not and may not be concerned about collecting generous dividend payouts. To be honest, many traders are solely focused on the prospect of Microsoft possibly buying out Activision Blizzard. However, this event isn't a foregone conclusion, as regulators in the U.K. are putting up roadblocks.
Microsoft has reportedly proposed to buy out Activision Blizzard for $75 billion. That event, if it happens, would likely give ATVI stock a sizable short-term boost. However, the U.K.'s antitrust regulator, known as the Competition and Markets Authority, expressed concerns that a Microsoft-Activision Blizzard merger could weaken competition in the cloud and console gaming markets.
Inhibiting competition, according to the regulators, "could harm U.K. gamers who cannot afford expensive consoles."
So, don't count on a merger of Microsoft and Activision Blizzard happening in the very near future. This doesn't mean the deal is completely off the table, though. The Competition and Markets Authority actually identified some "structural" solutions that might make it possible for the proposed buyout to take place.
These solutions aren't ideal, however. The Competition and Markets Authority considered that Activision Blizzard could divest "the business associated with"
Call of Duty, or could divest "the Activision segment of the company" or "the Activision segment and the Blizzard segment … which would include the business associated with"
Call of Duty and
World of Warcraft, "among other titles."
There's really nothing palatable about any of those proposed scenarios.
Call of Duty,
World of Warcraft, and "other titles" are undoubtedly what made Activision Blizzard so attractive to Microsoft in the first place.
Activision Blizzard would be a shell of a company after implementing the Competition and Markets Authority's proposed solutions. So, prospective investors should wait and see how these developments in the U.K. play out over the coming months.
Is ATVI Stock a Buy, According to Analysts?
Turning to Wall Street, ATVI stock is a Strong Buy, based on 14 Buys and two Hold ratings. The average
Activision Blizzard price target is $91.87, implying 19.65% upside potential.
Conclusion: Should You Consider ATVI Stock?
ATVI stock has strong support among analysts, so that's bullish. On the other hand, Activision Blizzard doesn't pay much of a dividend, and the company's shares aren't bargain-priced at the moment.
Besides, anyone counting on a near-term deal between Microsoft and Activision Blizzard is likely to be disappointed. The best strategy, then, is to sit back and play
Call of Duty or
World of Warcraft or find some other way to distract yourself from the temptation to invest in ATVI stock now.
Disclosure
Alphabet (Google’s) stock (NASDAQ: GOOG) has lost 9.8% in the last week, underperforming the S&P 500 (down 1%). Further, the same trend was observed over the last ten days (-5.8% vs 0.6%) and one month period (2.8% vs 3.2%).
After struggling last year, Amazon (NASDAQ: AMZN) stock has seen some encouraging rebound momentum early in 2023's trading. But while the the company's share price is now up roughly 18% year to date, it still trades down roughly 47% from its valuation peak.
Warren Buffett's Berkshire Hathaway Inc reduced its stakes in Activision Blizzard and in Bank of New York Mellon in the fourth quarter, while it added shares in Apple Inc, according to a regulatory filing on Tuesday.
Investors can harness the power of entire indices by adding ETFs focusing on the Dow Jones (
DJIA
), S&P 500 (
SPX
), and Nasdaq 100 (
NDX
) to their portfolios. Investing can be complex, but it can also be very simple. Simply investing in these three major U.S. indices would have generated significant returns over the past decade. Over the past 10 years, the Dow, S&P 500, and NASDAQ have gained 144%, 172%, and 272%, respectively.
It wouldn't be feasible to invest in all 500 stocks of the S&P 500, for example. However, you can add an S&P 500 ETF to your portfolio, giving you ample diversification and exposure to the growth of hundreds of the best companies in the United States. It's sensible for all investors to have some exposure to the broader indices, and it's a great way for new investors to start their portfolios with instant diversification.
Investors can use these three ETFs to add the breadth and depth of these three indices to their portfolios.
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
Investing in the Vanguard S&P 500 ETF is an effective way to gain exposure to the power of the S&P 500 as a whole. This massive ETF has $281 billion in assets under management.
As you might expect, since it covers the entire S&P 500, VOO ETF is very diversified with 506 holdings, and
VOO's top 10 holdings only make up
24.3% of the fund, essentially mirroring the concentration of the S&P 500 itself. The Vanguard S&P 500's top holding is the largest stock in the S&P 500 by market cap, Apple (
NASDAQ:AAPL
), which accounts for 6% of the fund.
The rest of the top 10 is rounded out by familiar names, including tech giants like Microsoft (
NASDAQ:MSFT
), Alphabet (
NASDAQ:GOOGL
), Amazon (
NASDAQ:AMZN
), Tesla (
NASDAQ:TSLA
), and Nvidia (
NASDAQ:NVDA
), as well as large-cap stocks from other sectors like Berkshire Hathaway (
NYSE:BRK.A
) (
NYSE:BRK.B
), ExxonMobil (
NYSE:XOM
), and UnitedHealth Group (
NYSE:UNH
).
VOO pays a dividend and currently yields 1.6%, which is roughly in line with the average yield of the S&P 500. Vanguard is known for its low-cost funds and ETFs, and VOO is no different, with a minuscule expense ratio of just 0.03%.
The Vanguard S&P 500 ETF has a favorable Smart Score of 8. Its average analyst price target of $421.99 indicates upside of 11.3% from current levels. Blogger sentiment is bullish, while hedge fund involvement is decreasing.
Last year, VOO stock fell 18.2%, closely tracking the performance of the S&P 500. However, things are looking up in 2023 as the ETF is up 8.4% year to date. Ultimately, the Vanguard S&P 500 is an efficacious and cost-effective way to add exposure to the entire S&P 500 to your portfolio.
Invesco QQQ Trust (
NASDAQ:QQQ)
The Invesco QQQ Trust ETF, often referred to colloquially as "The Q's," is a massive $161 billion ETF that invests in the 100 largest non-financial companies in the Nasdaq.
The Nasdaq is the index that is most closely associated with the technology sector, so it is unsurprising that most of
QQQ's top holdings here are the same tech stocks that make up VOO’s top holdings. Stocks like Microsoft, Apple, Amazon, Alphabet, NVIDIA, Meta Platforms (
NASDAQ:META
), and Tesla dominate the top 10 holdings. Pepsi (
NASDAQ:PEP
) is the one notable non-tech stock amongst the top 10 holdings.
While QQQ is a diversified ETF with 102 holdings, it is much more concentrated than VOO. Its top 10 holdings make up 53.2% of the fund. Like VOO, QQQ pays a dividend and currently yields 0.7%.
The Invesco QQQ Trust has a positive ETF smart score of 8 out of 10, indicating an Outperform rating, and the consensus price target of $341.20 implies 11.5% upside from today’s prices. Meanwhile, blogger sentiment is positive, while hedge fund involvement is decreasing.
Tech stocks had a tough go of it in 2022, so it's unsurprising that QQQ lost 32.5% last year. However, investor enthusiasm for tech has returned in 2023, and QQQ has soared to a 13.3% gain year-to-date. Overall, the Invesco QQQ Trust is a cost-effective way (0.20% expense ratio) to add the innovation of the large-cap tech stocks in the Nasdaq 100 to your portfolio.
SPDR Dow Jones Industrial Average ETF (
NYSEARCA:DIA)
In some ways, the much larger S&P 500 has overtaken the Dow Jones Industrial Average as the dominant barometer for the U.S. economy. However, the Dow Jones is still viewed as a blue-chip index of world-class companies.
Being in the Dow Jones Industrial Average essentially screens out “bad." This is because Dow components have to be profitable and must have an excellent reputation, sustained growth, and be of interest to a large number of investors, according to S&P Global (
NYSE:SPGI
) (the company that maintains both the S&P 500 and Dow Jones Industrial Average).
The Dow Jones only includes 30 companies, so the SPDR Dow Jones Industrial Average ETF is naturally much more concentrated than the S&P 500 or Nasdaq ETFs listed above. The ETF has 31 holdings, and
DIA's top 10 holdings make up 55.2% of the fund.
Unlike the S&P 500 or the Nasdaq, the Dow is a price-weighted index, so high-priced Dow components like UnitedHealth have an outsize position in the fund. UNH, the health insurance giant, makes up nearly 10% of the fund.
The rest of the top 10 is essentially a who's who of iconic U.S. companies like Goldman Sachs (
NYSE:GS
), Home Depot (
NYSE:HD
), McDonald’s (
NYSE:MCD
), Caterpillar (
NYSE:CAT
), and Visa (
NYSE:V
), with Microsoft serving as the lone representative from ‘big tech.’
Because DIA isn’t as exposed to tech as VOO or QQQ, it soundly outperformed both ETFs last year (just as the Dow itself outperformed the S&P 500 and the Nasdaq), with a loss of 7% for 2022. However, as you might guess, DIA is lagging behind these two counterparts as tech rebounds in 2023, with a 2.4% gain year-to-date.
The SPDR Dow Jones Industrial Average ETF Trust has a neutral ETF Smart Score of 7. Further, the average DIA stock price target of $370.67 indicates upside potential of 8.7% from current pricing.
Like the other two ETFs above, DIA pays a dividend and yields 1.9%. Like its counterparts, it also features an investor-friendly expense ratio of 0.16%.
Investor Takeaway
In conclusion, history shows that investing in indices like the Dow, S&P 500, and Nasdaq is a fruitful way to invest over the long term. These 3 ETFs offer investors a way to gain exposure to each index in an effective, easy, and inexpensive manner.
All three of these indices look like sensible investments over the long term. Note that the Dow outperformed the others last year, thanks to its lower exposure to tech, while the QQQ is outperforming this year as tech rebounds. The VOO ETF may be the best way to get "the best of both worlds" as it features a mix of tech stocks and “old economy” stocks.
Disclosure
Artificial Intelligence stocks have been surging on the back of the hype surrounding ChatGPT, the viral AI chatbot that reached 100 million users in just two months.
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Microsoft will make a last-ditch effort to defend its $69 billion bid for "Call of Duty" maker Activision Blizzard in front of EU and national antitrust officials at a closed hearing on Feb. 21, the U.S. software company said on Tuesday.
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Chinese organisations, from state media to a Shaolin temple, said on Tuesday they have signed partnerships with Baidu's ChatGPT-style project, ahead of an expected launch next month.
Wall Street closed sharply higher on Monday as investors awaited key inflation data, which is likely to give a fair idea of the stance the Fed will adopt for future interest rate hikes. Also, Treasury yields slipped on Tuesday that sent tech stocks on a rally. All three m
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U.S. stock index futures edged higher on Tuesday ahead of January consumer inflation data that could offer investors further clues on how long the Federal Reserve will stick to its hawkish monetary policy.
Alphabet's (NASDAQ: GOOG) Google search engine has dominated the competition. In fact, in 2021 the top search term on the Bing search engine, owned by Microsoft (NASDAQ: MSFT), was "google."
Some of Wall Street's most speculative names, including meme stocks and shares of artificial intelligence companies, are leading the equity market rally this year, helped by renewed interest from retail investors.