Weekly Update: The Hottest Sector No One Is Watching
Good evening, and welcome to this week’s edition of Stealth Trades!
What is the hottest sector of the market over the last quarter?
It’s not semiconductors… or AI… or cloud computing…
The best-performing sector right now is eSports.
Gaming is an often-overlooked corner of the market since most of us are well past our video game days. But there is an entire generation spending billions in the online gaming space. Even the world’s richest man – Elon Musk – has professed his love for online multiplayer games.
The chart below shows ESPO – the VanEck Video Gaming and eSports ETF – against the Nasdaq 100 index over the past twelve months.
The outperformance is staggering.
Even in a strong bull market year led by the tech sector, ESPO delivered more than double the gains.
A lot of this performance came from a single stock – Applovin (APP). APP stock is up over 700% since last February.
Full disclosure, I hold a position in APP. My quantitative model began buying the stock in my personal account last January at just under $38 per share. It added more in March at $63 again last month at $310. As of this morning, it was trading for $450.
But Applovin is not the only big mover in this under-the-radar group.
Take-Two Software (TTWO) – the video game developer behind Grand Theft Auto and Red Dead Redemption – is also seeing upward momentum.
Sea Limited (SE) is also on a tear…
You could also look at Tencent (TCEHY) which is the dominant name in the China market, but personally, I try to avoid Chinese stocks.
Call me crazy, but buying stocks in a socialist economy with a history of nationalizing successful firms is a little too risky for my taste.
The previous names I mentioned (APP, SE and TTWO) are all in nice clean uptrends with no signs of slowing down. But if you wanted to be more tactical, there are two others you might consider.
Roblox (RBLX) is a stock we have been bullish on since mid-2022. The share price has doubled over the last couple years and is now in a confirmed Stage 2 uptrend.
Thanks to disappointing numbers released earlier this month, the stock pulled back to the $60 area. It now sits on the previous break level from December as well as its 50-day simple moving average.
This, to me, is a low-risk entry point. This is where buyers should step in and support the stock if the uptrend is to resume. Traders should be able to risk less than 10% by buying here for a great pullback buy.
Another stock to keep on your radar is Electronic Arts (EA). “E… A.. Sports… It’s in the game.” (If you know you know.)
This stock has been a laggard in the gaming sector, but it is showing signs of coming back to life.
After a hideous start to the year, EA seems to have found a bottom in the $115-$130 range.
The stock is now forming a base as shown in the yellow box above, and a strong move through the top of this range could be the start of a new trend higher.
The AI theme is getting a bit long in the tooth. And while we are still in the early stages of application in the real world, the investment angle has gotten a bit overcooked in my opinion.
This is a good time to be looking for new, emerging sectors, and eSports is a clear standout to me.
Best wishes for your trading,
