Customers will pay more for a brand-name product that they know and love. That’s true with everything from home goods to restaurants, and even to choices of entertainment. A company that invests in building a strong brand can create excess returns for shareholders over time.
But even great companies will see setbacks. That can create reasonable buying opportunities to get in on the long-term wealth-creation benefits of owning great companies.
That may be the case with
Activision Blizzard (ATVI). The company owns a number of popular video game titles, each of which is a brand with a loyal customer base. Shares have been whipsawed given the focus on the company’s potential acquisition by
Microsoft (MSFT).
While the deal may not pan out, Activision’s appeal as a standalone company remains strong. It’s trading at about 20 times earnings, carries a 20 percent profit margin, and grew revenues 8 percent in a challenging year – and a slow one for new video game releases.
Looking at upcoming title launches, shares may be poised to move higher – with or without an acquisition.
Action to take: Investors may like shares here in the low $70 range. The company started a dividend, and pays about a 0.6 percent yield here.
For traders, as long as the acquisition offer is pending, shares will likely remain range-bound. Traders can buy shares and sell covered calls for income. Or they could sell a put option at the low end of the range. The April $70 puts, last going for about $2.15, can be sold to open for income.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.