The Motley Fool Take
Activision Blizzard has been having a rough year. It faces lawsuits alleging that it’s a hostile workplace, and it recently warned of delayed releases. The stock was recently down almost 40% from its 52-week high, presenting an attractive entry point for long-term believers in the company.
There’s much to like about Activision Blizzard, which is one of the largest video game publishers in the world, with close to 400 million monthly active users. Its shift to a digital distribution strategy boosted profits over the past decade, and with 88% of its revenue coming from digital channels, it’s largely immune from supply chain problems.
The company’s Call of Duty franchise has sold over 400 million units since its debut 18 years ago. Other Activision Blizzard properties include Candy Crush Saga, World of Warcraft, Overwatch, Hearthstone, Diablo, Tony Hawk’s Pro Skater, Crash Bandicoot, Skylanders, Spyro and Sekiro. Investors and gamers alike have been eagerly awaiting Diablo IV and Overwatch 2, but management has recently noted that those titles will be delayed.
Still, they’ll eventually be released, and the continued growth of video games worldwide seems assured. After learning more about Activision Blizzard, if you’re satisfied with how it’s addressing its issues, consider buying a few shares. (The Motley Fool owns shares of and has recommended Activision Blizzard.)
Ask the Fool
From A.M. in Bend, Ore.: When the government prints money, where does it go?
The Fool responds: The Bureau of Printing and Engraving, part of the U.S. Department of the Treasury, prints billions of dollars’ worth of U.S. paper currency each year. It’s distributed through Federal Reserve Banks. Some of the cash replaces existing bills that are too worn, and some enters circulation when the Federal Reserve buys U.S. Treasury bonds on the open market.
From P.B. in Columbus, Ind.: What does a low P/E ratio mean?
The Fool responds: The price-to-earnings ratio is a rough measure of a stock’s earning efficiency. To calculate it, divide a stock’s current price by a year’s worth of its earnings per share. If Dodgeball Supply Co. is trading for $100 per share and has trailing EPS of $4, its P/E ratio is 100 divided by 4, or 25.
The P/E is often referred to as a “multiple” because it shows how much you would be paying for a stock per dollar of earnings. So a stock with a P/E of 20 would be priced at 20 times its EPS.
In general, a low P/E suggests that a stock is attractively priced — though struggling companies can often have low P/Es, too. A steep P/E may reflect an overvalued stock that’s more likely to stall or decline than to keep rising.
There’s no single standard that defines a low or high P/E ratio. P/E ratios vary by industry, with capital-intensive businesses (such as automakers) tending to have lower ones than those in lighter industries (such as software companies). Compare a company’s P/E both to its own average P/E, and to those of its peers. And never rely only on a P/E ratio when making decisions. Always examine a variety of metrics.
The Fool’s School
For those without the time, interest or skills to study stocks and decide which to invest in and when, mutual funds (and their cousins, exchange-traded funds, or ETFs) can be a perfect solution. For best results, though, learn the basics about them first.
For starters, while it’s reasonable to review a fund’s recent performance, don’t jump into any fund just because it posted boffo results recently. To some degree, a terrific return isn’t the result of the fund manager’s brilliance, but of good luck — at least over the short term. (And many fund managers invest only for the short term.) An amazing return in one year may well be followed by a poor return the next. Remember, too, that an amazing multiyear average annual return may be the result of one unusually strong year, with the rest of the years unremarkable.
Next, aim to minimize the fees you pay. You can look up funds at sites such as Morningstar.com, where you’ll find each fund’s “expense ratio” listed. That summarizes its annual ongoing fees, expressed as a percentage of your assets. A ratio of 1% on an investment of $5,000 means an annual fee of $50.
Fees are part of why most stock mutual funds fail to perform as well as the market average or their benchmark index. According to S&P Global, fully 82.5% of all domestic large-cap stock mutual funds underperformed the S&P 500 Index over the past 10 years (as of mid-2021).
Given the dismal performance of many mutual funds, then, it’s well worth considering just sticking with low-fee, broad-market index funds, such as those that track the S&P 500 index of hundreds of America’s biggest companies. You’ll pay minuscule fees and will earn close to the market’s average instead of possibly vastly underperforming it.
Learn more about mutual funds at Fool.com in the “Investing Basics” nook. You might also read The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle (Wiley, $25).
My Dumbest Investment
From C.S., online: My dumbest investment happened around 2004. I had a lot of money and decided I needed to hire a professional money manager. I didn’t know what the word “fiduciary” meant at the time, so I went to the first local firm I found. It served me well for a while, but when the market crashed around 2008, I lost 40% to 50% almost overnight — and then kept losing money. I finally woke up one day and started digging into what was going on. Turns out, every investment decision these guys had made over the previous two years was for their own benefit. They would buy and sell weekly just to make fees and commissions. Needless to say, that precipitated the best investment I’ve ever made. I moved my money to a brokerage account and learned to make my own investing decisions.
The Fool responds: The one word fiduciary is very important. When applied to financial advisers and money managers, it means that they’re required by law to put your own interests ahead of their own and to do or recommend what’s best for you. Whenever you’re looking for a financial adviser, make sure you choose one who is a fiduciary. Some other professions, such as lawyers and real estate agents, have fiduciary responsibilities, requiring them to disclose any conflicts of interest and to put your best interests first.
Who am I?
I trace my roots back to the 1830s, when a Vermont blacksmith moved to Illinois. Cast iron plows weren’t working in prairie soil, so he developed the hugely successful self-scouring steel plow. By 1846, he was cranking out 1,000 plows annually, and by 1857, 10,000. My founder (whose name I’m generally known by) later moved his operations to Moline, Ill., and ended up mayor of the town. I expanded my offerings over time, adding cultivators, tractors, balers and even chainsaws and forklifts. With a recent market value topping $110 billion, I’m the largest agricultural machinery maker in the world. Who am I?
Can’t remember last week’s question? Find it here.
Last week’s trivia answer: Ecolab