This Video-Gaming Stock Is the Best for 2021, Two Traders Say

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Video game stocks are leveling up.

That's the gist of a note from Morgan Stanley analysts, who wrote that 2020 "likely pulled forward four years of gamer adoption" given the spikes in users and times spent playing games over the course of the Covid-driven global lockdowns.

The firm named Activision Blizzard its top pick and raised its price targets for Activision, Electronic Arts, Take-Two Interactive Software, Glu Mobile, SciPlay and Zynga.

With the industry looking ahead to long-term growth, one of these names looks especially attractive, two traders said Tuesday.

"If you look at Activision in particular, it's seen a reversal of a three-month corrective phase and also a breakout of a major long-term resistance" at $85, said Katie Stockton, founder and managing partner at Fairlead Strategies.

The stock, which closed Tuesday's trading at $89.42, has cleared that hurdle and looks poised "for long-term upside follow-through," Stockton told , told CNBC's "Trading Nation." She added that her firm recently added Activision to its list of ideas for long-term stock positions.

"That short-term momentum may fall off, we believe, in January with the broader market briefly, but we would be using a pullback to add exposure to take advantage of the long-term setup, which technicians like to call a cup-and-handle formation," she said. "It's essentially a big, rounded basing phase followed by a corrective phase that then gives way to a major breakout, and that's what we have in Activision."

Activision also seems to be one of the best-positioned companies in its space when it comes to capitalizing on how much people spend on and within the "addictive" world of video games, said Mark Tepper, president and CEO of Strategic Wealth Partners.

"Activision, in my opinion, is the strongest all-around gaming company," Tepper said in the same "Trading Nation" interview, applauding its pull with casual and pro gamers.

"Call of Duty is the best-performing franchise ever. They've got recurring demand. They can continue to just recycle old titles and make money off them year after year after year. And you're getting some pretty good growth out of that company as well," he said.

Tepper's other favorite in the group was Glu Mobile, the company behind phone-based games such as Kim Kardashian: Hollywood, Deer Hunter and Diner Dash.

"Mobile is now more relevant than ever. And in my opinion, mobile gaming appeals more to the casual gamer," Tepper said. "From a valuation standpoint, it's pretty attractive when you compare it to its peers as well. So I'd say Activision and Glu, those are the two best ways to play it."

At the end of the day, the broader market's pattern is "key" to this group's moves over the coming months, Stockton said.

"The top-down influences are very strong with any kind of momentum stock," she said. "The market's been very, very strong. It has positive seasonal influences. In January, I do think that sentiment, which became overly bullish by some measures, will give us that pullback. So, I'm not having anyone rush to add exposure to names here, but rather looking to be hedged through January or part of January and looking to add exposure into any weakness to take advantage of the likes of Activision."

Disclosure: Strategic Wealth Partners owns shares of Activision Blizzard and Glu Mobile.


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