Game on but at what cost?

Wasteland, State of Decay, Doom, Rage, The Evil Within. No, that’s not a symbolist poem to describe the current mood within the US, but rather a sample of popular computer game names. As the country reels from its worst public health crisis in more than a century, the combined effect of lockdowns and the release of new “ninth generation” consoles have boosted the use of computer games.

On the one hand, this is positive news for the four big computer game publishers under Morningstar coverage: Activision Blizzard (NAS:ATVI), Take-Two (NAS:TTWO), Electronic Arts (NAS:EA), and Ubisoft (PAR:UBI). For others, it reinforces fears that an increase in screen time, and the use of computer games in particular, is harming young minds.

“Nearly a year into the coronavirus pandemic, parents across the country—and the world—are watching their children slide down an increasingly slippery path into an all-consuming digital life,” writes Matt Richtel in the New York Times. “When the outbreak hit, many parents relaxed restrictions on screens as a stopgap way to keep frustrated, restless children entertained and engaged. But, often, remaining limits have vaporised as computers, tablets and phones became the centrepiece of school and social life, and weeks of stay-at-home rules bled into nearly a year.”

But faced with the relentless advances in video game sophistication you can well understand how difficult it must be for parents trying to preach moderation. And confinement seems to be exacerbating the problem. Morningstar analyst Neil Macker says the amount of time spent on games appears to have increased during the pandemic because of the stay-at-home regulations and lack of live events at the beginning of the shutdown.

Citing findings from data providers NPD and SuperData, Macker says 79 per cent of US consumers played a video game during the first six months of the coronavirus outbreak with total time spent playing up 26 per cent. Of US consumers aged 18 to 24, 66 per cent played more console games in the first month of the COVID-19 lockdowns, well ahead of 28 per cent of all US consumers playing more console games.

And subscription services, specifically multi-publisher ones like Xbox Game Pass, have grown much faster than Macker’s expectations due in part to the lockdowns. In the case of Activision Blizzard, which owns franchises such as World of Warcraft and Call of Duty, Macker says the company’s revenue growth is expected to average 10 per cent over the next five years with the largest growth occurring in 2020 due to the impact of coronavirus and the resultant stay-at-home orders. Game on but at what cost?

Activision Blizzard (ATVI), Ubisoft (UBI), Electronic Arts (EA), Take Two Interactive Software (TTWO) – growth of $10k – 1YR

Source: Morningstar Premium

In Firstlinks this week, Graham Hand ponders the fate of America under its new Democrat leader Joe Biden. The inauguration of the 46^th US president brings with it the promise of more pandemic stimulus and stock market optimism. But as US markets greeted Biden’s arrival with a record, Hand notes that with all this money sloshing about companies do not even need to make a profit now or in the near future to become extremely valuable.

“The stories of how many stocks are not trading on fundamentals is repeated so often it is almost tiresome,” Hand writes. “Any number of charts illustrate the point. Elon Musk can tweet about an unknown company (such as Signal Advance, Inc) and the share price can rise 10-fold over a couple of days. There is no analysis of company value and the sheer speculation will only stop when there is a major correction.”

As Hand notes, the contrast here with local investor Peter Thornhill could not be greater. Thornhill has stuck to the same simple methods for 40 years, and in Firstlinks this week he updates his “mothership” chart to show the latest results as well as explaining his techniques. It has delivered a handsome retirement income for him.

Elsewhere, we speak to Redpoint CEO and portfolio manager Max Cappetta about the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.

James Gard examines Warren’s Buffett's 2020 scorecard. The Oracle of Omaha had a mixed year by his standards, with some winners such as Apple Inc (NAS:AAPL) and Snowflake (NAS:SNOW) balanced by banks and energy.

Sachin Nagarajan outlines a responsible version of market-timing and shows how rebalancing your portfolio allows you to “buy the dip”.

Morningstar’s Washington DC-based head of policy research Aron Szapiro offers an investor’s guide to the Biden administration, which looks at the tools the president can wield and the public policy he might pursue.

Have large-growth stocks peaked? John Rekenthaler examines the surge that has confounded the experts.

Demand for covid-19 vaccines has seen interest in pharma stocks soar, but should you invest in the vaccine makers? Morningstar analysts think this is a temporary trend.

This week’s $2.3 billion conditional takeover bid for industrial garbo Bingo (ASX:BIN) is a potential windfall, says Morningstar analyst Grant Slade.

Morningstar director of personal finance Christine Benz looks at the rewards—and the risks—of investing from your phone.

Despite regulatory uncertainties, the Chinese internet behemoth Alibaba is still attractive, write Morningstar analysts Chelsey Tam and Iris Tan.

Where in the world do you go to find growth post-covid? The jury is divided on how robust the recovery will be but there are ways to make the most of it, says Anthony Fensom.

Nicki Bourlioufas explores how the renewable energy drive is boosting commodities demand and the companies that are set to benefit.

And in Your Money Weekly, Peter Warnes charts the stock market legacy of Donald Trump and explains why the promise of incoming Treasury Secretary Janet Yellen to “act big” on pandemic stimulus could come back to haunt her.

Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.

See also Morningstar Guide to International Investing.