1 share to buy, 1 to empty when markets open: Activision Blizzard, Robinhood

Stocks on Wall Street on Friday, with tech suffering hard in its worst month since 2008, as tech stocks sank after disappointing earnings and worries about…

Daily charts for Nasdaq, Dow Jones, and SPX

Next week is expected to be eventful, if not choppy for markets, as the Federal Reserve is set to raise interest rates for the second time in a row after wrapping up its widely expected policy meeting on Wednesday.

In addition to the Federal Reserve, this week’s calendar also includes key economic data, including the US for April as well as the latest surveys.

Earnings like Advanced Micro Devices (NASDAQ :), Shopify (NYSE :), Uber (NYSE :), Airbnb (NASDAQ :), Block (NYSE :), DraftKings (NASDAQ :), Etsy (NASDAQ :), Starbucks (NASDAQ:) ), Pfizer (NYSE:) and Moderna (NASDAQ 🙂 are also on board.

Regardless of which direction the market is headed, below we highlight a stock that is likely to be in demand and another that could fall further.

Remember though, we have the time frame merely for the next week.

Stocks to buy: Activision Blizzard

Activision Blizzard (NASDAQ:) shares may see increased buying activity next week, after encouraging news that Warren Buffett’s Berkshire Hathaway (NYSE:) has raised an electronic games and multimedia company in Santa Monica, California worth about $5.6 billion. Buffett revealed the investment at Berkshire’s annual shareholder meeting in Omaha, Nebraska, on Saturday.

Berkshire built most of that stake after Microsoft (NASDAQ:) proposed a $95-a-share acquisition of Activision in January. The group initially bought $1 billion worth of AVI stock late last year, in a bet that the video game company was undervalued.

Buffett’s big position is widely seen as a merger arbitrage bet that a proposed $68.7 billion acquisition of Microsoft will be approved, despite facing tough antitrust scrutiny by the US Department of Justice.

“Sometimes I’ll see a balancing deal and do it,” said Berkshire’s chairman and CEO. “If the deal goes through, we make some money,” Buffett added.

Activision stock is currently trading well below Microsoft’s offer, closing at $75.60 Friday, 20% less than its suggested acquisition price.

The proposed transaction is expected to close before July 2023.

atvi . daily chart

Year-to-date, AVI is up 13.6%, outperforming the broader market by a wide margin. At current levels, the market capitalization of game creators such as Call of Duty, World of Warcraft, and Candy Crush is $59.1 billion.

Not surprisingly, InvestingPro’s quantitative models indicate a nearly 36% rise in ATVI’s stock over the next 12 months, bringing it closer to its fair value of $102.53 per share.

AVI Fair Value Estimates

AVI Fair Value Estimates

Source: InvestingPro

Stocks to Unload: Robinhood Markets

Robinhood Markets (NASDAQ 🙂 stock, which has fallen to a series of record lows in recent sessions, is expected to suffer another difficult week as investors worry about the negative impact of several factors that have plagued the online brokerage app.

In a sign of how poorly Robinhood’s business has been doing lately, the faltering trading platform last week posted a bigger-than-expected loss and shrinking revenue, both of which fell short of analyst estimates.

In addition, Robinhood said the number of monthly active users continued to decline during the quarter, while the average amount spent per user also declined, in part due to a significant slowdown in retail trading activity in both stocks and cryptocurrencies.

The retail brokerage also withdrew its revenue guidance and warned that “market uncertainty” is causing clients to be more cautious in their portfolios.

Robinhood earns nearly 70% of its revenue from customer transactions, so its financial results tend to suffer when trading activity slows.

hood daily chart

HOOD shares began trading on the New York Stock Exchange at $38 after its initial public offering in July 2021, to close at a record low of $9.81 on Friday. At current levels, the fintech company in Menlo Park, California has a market capitalization of $8.5 billion.

Year-to-date Robinhood stock is down nearly 45% amid the ongoing sell-off of unprofitable tech stocks. Even more worrying, HOOD shares are 88% below their all-time high of $84.12 last August.

Berkshire Hathaway’s vice president, Charlie Munger, said Saturday that the retail broker will get it.

With the Federal Reserve poised to tighten monetary policy more aggressively than previously thought, it appears that unprofitable tech companies like Robinhood are heading for more losses, as less pessimistic monetary policy outlook threatens to undermine the value of their long-term cash flows.

With that in mind, the stock and cryptocurrency trading app shares are likely to remain subject to sharp fluctuations in the coming days.

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