How to Make A 186% Return on Video Games

Typically, when growth in the video game industry is discussed, it’s all about mobile gaming growth. After all, playing games on smartphones and tablets has been where most of the action has been in recent years, at least in terms of investing.

While casual gamers may still be driving plenty of business in mobile gaming, there’s still ample opportunity in more traditional gaming platforms, such as consoles and PCs. In fact, these traditional platforms may be even more important looking forward as AR/VR (augmented reality/virtual reality) games become more popular (and accessible).

One of the biggest players in the video game industry is Electronic Arts (NASDAQ: EA). EA is mostly known for its big label games, particular sports games and first-person shooters. Just last week, EA posted earnings and had a pretty substantial share price decline after issuing lower than expected guidance.

As you can see from the chart, EA stock dropped something like 6% the day after its earnings miss. However, the stock was having a great year up to that point and probably had become overvalued. The drop in share price may have been exactly the entry point some investors were waiting for.

First off, EA has several big games yet to come out this year which could boost revenue and earnings more than expected. I already mentioned the long-term potential of video games as AR/VR tech becomes better and cheaper. And then there’s the whole e-sports industry. Playing games competitively is an industry that’s growing like crazy and there’s a ton of money to be made in that arena, so to speak.

Here’s the thing…

A size option trader apparently agrees with me and purchased a massive call spread expiring in January of 2019. With EA stock at $132, the trader bought roughly 11,000 January 135 calls while selling the 155 calls for a total debit of $7. That means the trader spent over $8 million on the trade. Clearly, he or she if very bullish on EA over the next half year.

With $7 paid in premium, the breakeven point for the spread is at $142. That same premium is the max loss for the trade. Max gain is at a point anywhere above $155 at expiration, slightly higher than where the stock was before the earnings miss. Max gain is $13, or $14.3 million in dollar terms… that’s also a return of 186%.

I think this a decent trade to emulate. EA may not recover for a few months, but has several potential catalysts which could send the stock higher down the road. The price of the spread is not cheap, but 186% return potential and six months of time is reasonable for the cost.

If you like the trade but want to reduce your costs somewhat, you can narrow the spread. For instance, the January 135-145 call spread only costs $4 but lowers your max gain to $6. You can also pick an expiration which is closer, but I think EA may need the extra time to recover.

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Source: Investors Alley 

Market Preview: Apple and Tesla Earnings Tuesday, FOMC Wednesday

Neither the strong GDP number on Friday, nor the rosy outlook from Caterpillar Monday morning could move the market upward Monday. Facebook (FB) hit new post-earnings lows and Netflix (NFLX) fell almost 6% Monday alone. Many analysts are talking about a possible sector rotation out of growth stocks and into value.

Tuesday and Wednesday may provide some clarity when investors react to Apple (AAPL) earnings after the close. Analysts are not expecting any earth-shattering news from Apple. Charter Communications (CHTR) will report Tuesday morning. Analysts are looking for signs that the spoils from their Time Warner Acquisition will begin showing up in the second half of this year.

Wednesday Automatic Data Processing (ADP), the giant payroll processing company, will give the market more color on jobs. The company reports earnings, and the ADP employment report is released at 8:15am. Everyone will be listening for what Elon Musk has to say Wednesday afternoon when Tesla reports. The company was questioned recently for renegotiating contracts with suppliers. Some saw this as a sign the company would not make sales projections.

The economic calendar is packed Tuesday and Wednesday. In addition to the jobs numbers, Tuesday brings Consumer Confidence. Wednesday morning sees the release of two manufacturing index numbers. Wednesday afternoon the FOMC policy statement will be released. Analysts do not expect the Fed to raise rates. But, if the strong GDP number jolts the Fed to take additional action, the market will likely respond negatively.

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7 Best Stocks to Buy to Upgrade Your AI Portfolio

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Precious few other industries will lever an indelible impact quite like artificial intelligence. As I mentioned in my write-up for the related field of automation technologies, AI drastically improves efficiencies to unprecedented levels. Moreover, AI will spark new industries, opening up several opportunities. From an investment perspective, AI companies represent some of the best stocks to buy.

At the same time, we must be careful not to conflate hype with practical realities. As MIT Sloan Management Review explains, “Virtually all human achievements have been made by groups of people, not lone individuals.” In other words, innovation, according to the brilliant minds at MIT, is inherently collaborative.

Discussing artificial intelligence conjures up images of humanoid robots that function just like we do, perhaps with stilted, awkward mannerisms. It also brings up the very awkward concept that machines will one day take over our jobs. Robots and AI mechanisms don’t ask for vacations or benefits, nor do they complain to HR for interpersonal issues.

But the true power of artificial intelligence is far more conducive to our way of life. A genuine AI platform ultimately complements human economic and scientific efforts, not replaces them. For instance, AI can be deployed to scan through terabytes of data, extracting useful patterns and insights previously unattainable. Moreover, AI can advance medical understanding on our way to eradicating diseases.

Therefore, proper AI development is nothing something to be feared, but to be embraced. That also goes for AI-related investments. Here are my seven picks for the best stocks to buy within this rapidly-evolving sector.

Best Stocks to Buy in the AI Market: Nvidia (NVDA)

Best Stocks to Buy in the AI Market: Nvidia (NVDA)

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These days, semiconductor and tech firm Nvidia (NASDAQ:NVDA) is mostly known for its graphics processors. However, NVDA is much more than just an indirect way to play the cryptocurrency markets. Since artificial intelligence is so data-centric, its benefits cannot be actualized without the proper physical infrastructure.

To that end, Nvidia promises a dramatic improvement in computer-processor speeds that contradicts Moore’s Law, a principle that states gains in CPU performance sharply declines once technology passes a critical maturation point.

In addition, we all know about the company’s innovations in autonomous driving technologies. While the industry has received a black eye due to high-profile accidents, that’s not going to stop NVDA from further perfecting the burgeoning innovation.

But what makes NVDA one of the best stocks to buy in this sector is its outstanding financials. Investors have plenty of attributes to like, from their cash-rich position relative to debt, or their class-leading profitability margins.

The one knock against NVDA stock is that everybody loves it. It had an outstanding year in 2017, and it’s following it up this year with another strong performance. But if shares take a dip, NVDA is a no-brainer buying opportunity.

Best Stocks to Buy in the AI Market: IBM (IBM)

On surface level, IBM (NYSE:IBM) is the exact opposite of an exciting AI investment like NVDA. Unlike many of its competitors, IBM is part of the technology old guard. That’s a diplomatic way of saying that the company has become irrelevant. Indeed, “Big Blue” has been shedding its legacy business in a bid to get with the times.

That said, the future looks bright for IBM’s foray into artificial intelligence. Their Watson platform is a particular highlight — it utilizes cloud-based predictive analytics to provide key insights and forecasts. One major client among several is Royal Bank of Scotland (NYSE:RBS). To develop their own digital assistant, RBS called on IBM Watson.

Granted, a reason why investors don’t clamor towards IBM stock is that market performance has been disappointing. But from a contrarian perspective, this is more favorable than buying into extreme momentum.

Plus, IBM being different from its peers is a positive. Currently, the company’s dividend yield is a generous 4.3%. At a time when the broader indices hardly generate much excitement, IBM’s sure bet offers an attractive solution.

Best Stocks to Buy in the AI Market: Amazon (AMZN)

Best Stocks to Buy in the AI Market: Amazon (AMZN)

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A few months back, Apple (NASDAQ:AAPL) made headlines as it inched closer to becoming the first trillion-dollar company. At time of writing, Apple has yet to decisively seal the deal. This sets into motion the idea that Amazon (NASDAQ:AMZN) can beat the iconic smartphone maker to the punch.

With a market capitalization of $860 billion, it’s certainly not out of the question. However, the real reason to buy AMZN shares is its robust strengths across multiple industries. We’re well aware of Amazon’s dominant position in e-commerce. But lately, the company has focused significantly on artificial intelligence.

Through Amazon Web Services, or AWS, the e-commerce giant offers machine-learning and deep-learning solutions for its business clients. On the consumer end, Amazon offers smart-speaker devices fitted with the Alexa digital assistant. In fact, the company is so dominant in this sector that it owned 70% to 76% of market share.

True, AMZN stock has enjoyed tremendous momentum, which doesn’t help swaying contrarian buyers. But just consider that last year, AMZN building off its $1,000 price point seemed like a far-fetched concept. Now, it’s looking to conquer $2,000.

Better yet, Amazon has the tools to get there, and beyond.

Best Stocks to Buy in the AI Market: Facebook (FB)

Best Stocks to Buy in the AI Market: Facebook (FB)

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I can’t think of too many companies that are having a worse year than Facebook (NASDAQ:FB). For some time, its Facebook Live platform had faced sharp criticism for indirectly facilitating violent criminal broadcasts. Later, the social-media firm took a massive hit in the markets due to the Cambridge Analytica controversy.

It took a while, but FB eventually got back on its feet. It even gained about 20% for the year … until its second-quarter earnings report happened.

After posting what the Street considered disappointing revenues and subscriber growth, shares plummeted. The fallout was so bad that the company lost between $100 billion and $130 billion in market value.

With such sharp losses, it’s easy to pin the blame on Facebook’s management team. But you also must consider rival Twitter’s (NYSE:TWTRearnings disappointment. It too lost substantial momentum in subscriber growth that analysts didn’t expect. Obviously, the social-media fallout isn’t exclusively a Facebook phenomenon.

This makes FB one of the best stocks to buy from a contrarian point of view. Facebook is an AI engineer’s dream come true. With a database of over two billion active users, any predictive-analytics program gains immediate credibility if plugged into this network.

No wonder Cambridge Analytica eagerly took advantage!

Best Stocks to Buy in the AI Market: BioXcel Therapeutics (BTAI)

Best Stocks to Buy in the AI Market: BioXcel Therapeutics (BTAI)

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Invariably, any list of best stocks to buy in artificial intelligence will feature a healthy dose of tech firms. That said, AI isn’t limited to computer-centric endeavors. The same advancements in big data and predictive analytics can be incorporated to address the human condition. This is where BioXcel Therapeutics (NASDAQ:BTAI) comes into the picture.

BTAI is a clinical-stage biopharmaceutical firm that specializes in immuno-oncology and therapies towards neurodegenerative diseases. What makes BioXcel stand out is their integration of artificial intelligence into their pharmaceutical pursuits. With their AI platform’s big data capabilities, they can analyze promising or discontinued drugs that didn’t quite meet expectations.

The idea here is to see if an adjustment to the drug’s chemistry, or even the dosage, can spark progress in challenging cases. This process also potentially gives new life to older or less-appreciated therapies.

However, investors must watch out for market volatility. Similar to many other clinical-stage pharma companies, BioXcel doesn’t have the greatest financials. To put it bluntly, BTAI is an all-or-nothing affair. But if you have the steel fortitude to handle the risks, this company has tremendous upside potential.

Best Stocks to Buy in the AI Market: Arotech (ARTX)

Best Stocks to Buy in the AI Market: Arotech (ARTX)

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While AI has the power to heal, it also paradoxically has the power to destroy. Unfortunately, as long as humans will walk the earth, we will have the seemingly uncontrollable urge to kill each other. That’s cynically one of the reasons why defense contractors like Arotech (NASDAQ:ARTX) exists. They help ensure that our losses stay at a minimum.

But dig a little deeper and you’ll discover that Arotech’s AI platforms have wide-ranging applications. Along with their core products and services, ARTX offers world-class combat simulators. Thanks to their extensive AI expertise, Arotech simulators offer military and emergency personnel an opportunity to train in realistic, high-stress environments without the consequences of actual bullets flying.

Arotech’s simulators can be especially helpful for law-enforcement agencies, which have suffered PR crises stemming from discriminatory practices.

ARTX stock will appeal to many contrarians and discount-seekers looking to jump on the next big rally. Certainly, its price warrants its inclusion on a list of best stocks to buy under $5.

However, those who want to bet on ARTX should note its financials. Middling is a fair and appropriate description. The defense contractor has also disappointed in terms of sales growth. That said, Arotech produced a 22% year-over-year revenue lift to $27.2 million in Q1. Therefore, this “cheap stock” could be on the resurgence.

Best Stocks to Buy in the AI Market: Plug Power (PLUG)

Best Stocks to Buy in the AI Market: Plug Power (PLUG)

You may love your gas-guzzling hot rod, but a day will come when all fossil-fuel based vehicles are destined for the junkyard. Increasingly, automotive manufacturers are shifting towards electric vehicles, or EVs. We’re not just talking about boring fare like Toyota’s (NYSE:TM) Prius. As I mentioned several weeks ago, Ferrari (NYSE:RACE) is planning their own supercar EV.

For traditional automotive enthusiasts, this concept is a mind-boggling one. However, New York-based Plug Power (NASDAQ:PLUG) would simply call it the next step in a long-awaited evolution. An alternative-energy company specializing in hydrogen fuel cells, PLUG prides itself on delivering cost-effective solutions.

To be fair, Plug Power isn’t quite a household name. That said, they secured FedEx (NYSE:FDX) as a major client. In conjunction with Workhorse Group (NASDAQ:WKHS), PLUG provided FedEx’s first North American fuel-cell powered delivery van.

Of course, this is a significant victory, but before considering PLUG stock, check out its financials. As you might imagine from its sub-$2 price point, it’s not pretty. However, management showed strong revenue growth in the most recent quarter, so PLUG  may be on the up and up.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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Source: Investor Place