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This stock is the best opportunity among video game plays right now, traders say

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As video gaming stocks take off, traders place their bets in the space

Gaming stocks are having a great year.

The VanEck Vectors Video Gaming and eSports ETF (ESPO), which tracks 25 stocks central to those industries, has rallied more than 23% year to date in the face of the broader market's roughly 9% decline. 

Video game sales have broken records with millions staying at home during the coronavirus pandemic, with even Amazon making a foray into the space this week with its first high-budget shooter, Crucible.

Chipmaker Nvidia, ESPO's top holding, reported a 25% year-over-year increase in its gaming business in its Thursday earnings report, with its CFO writing in a letter to shareholders that stay-home efforts and "gaming drove a surge in e-tail demand" in the company's fiscal first quarter.

With those positive catalysts, gaming could be an attractive bet — but much of the group is already overextended, Todd Gordon, managing director at Ascent Wealth Partners, warned on CNBC's "Trading Nation."

"One name that I would like to focus on here is Activision [Blizzard]," the company behind the "Call of Duty" franchise, Gordon said Thursday, calling up a long-term weekly chart of the stock.

"Each time the 50-[week] period moving average has crossed the 200, I've circled in the three prior occasions over the last 20 years," he said "If we zoom into the most recent attempt, we haven't quite crossed."

If Activision's 50-week moving average can cross above its 200-week moving average that'll be a bullish sign for the stock, Gordon said. The stock closed down nearly 2% at $72.47 on Thursday.

"That's been a long-term buy signal putting up $85 in sight. We have a long time until earnings, and ... last quarter beat handily, but this stock has a tendency to be very far away from Wall Street consensus," he said. "So, I think earnings in general will be volatile in this sector, but specifically watch this. We hold it and we like it."

Gina Sanchez, founder and CEO of Chantico Global, said investors should be aware of how volatile gaming stocks can be before buying in.

"It is much more volatile and has a much higher beta to the broad market and to the QQQ than any other segment, and that's because product launches are really important," she said in the same "Trading Nation" interview.

"This particular ETF is very leveraged to product launches because it requires at least 50% of revenues to be coming from the gaming segment. And so, that is a challenge," she said of ESPO.

With most of the group "very, very extended" and chipmakers Nvidia and AMD trading at "very, very high price-to-earnings ratios," the catch-up trades were fairly slim pickings, Sanchez said.

"Oddly, Activision, of the holdings in this ETF, is actually one of the better values," she agreed. "Now, this could be all over the place in terms of earnings, but I think in terms of long-term value, it's probably the best opportunity within this ETF."

Gordon was slightly more constructive on the chipmakers, highlighting AMD's "20-plus-year breakout."

"It's kind of holding below [$]60," he said. "If AMD can get another push, I think you might see a little bit of catch-up there with where Nvidia went."

AMD fell over 3% Thursday to close at $54.65.

Disclosure: Ascent Wealth Partners owns shares of Activision Blizzard. Gordon personally owns shares of AMD.

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