Can Video Game Stocks Power-Up Portfolio Returns?
The video game industry is an area in the market that has not received much attention lately. It has been six years since Microsoft (NASDAQ:MSFT) released its Xbox 360 gaming console, and fives years since Sony (NYSE:SNE) released the PlayStation 3. Although shares of these two entertainment giants have lagged behind the market, other companies in the video game industry are providing electrifying returns.
On Thursday, shares of Activision Blizzard, Inc. (NASDAQ:ATVI) reached a new 52-week high of $13.30. The company is an industry software publisher leader with games such as Call of Duty, James Bond, StarCraft, and Diablo. However, as the chart below shows, ATVI is hardly the best performing stock this year in the video game sector.
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Shares of Take-Two Interactive Software (NASDAQ:TTWO) and GameStop Corp. (NYSE:GME) have increased 14% and 9%, respectively. Take-Two publishes and develops products through its wholly owned labels Rockstar Games and 2K, which publishes its titles under 2K Games, 2K Sports and 2K Play. GameStop is a nationwide retailer of computer and console video games, both used and new. In the new era of digital distribution, some investors believe that GameStop and its chain of physical stores is a dying business model. Jim Chanos, head of the world’s largest short-selling fund, recently announced GameStop as one of his favorite shorts. He said, “Technological obsolescence has killed more value investors in the last 20 years than anything else.” Stocks like Research in Motion (NASDAQ:RIMM), Eastman Kodak (NYSE:EK), and Hewlett Packard (NYSE:HPQ) all come to mind. He goes on to say, “When a business changes, a lot of metrics that value investor uses become completely irrelevant, particularly in technology.”
Electronic Arts Inc. (NASDAQ:ERTS) has been a high performer in the video game sector. Shares have power jumped 43% year-to-date. The company is responsible for games such as Medal of Honor, The Sims, Battlefield, and Madden. Unlike software publisher Activision, EA has embraced the online social gaming movement. The company’s Facebook-based social game, The Sims Social, has grown to become the number two Facebook social game with 41.2 million monthly active users. Furthermore, you can play EA games on everything from the Xbox 360 to Apple’s (NASDAQ:AAPL) popular iPhone or iPad. EA also stays in touch with gamers through YouTube (NASDAQ:GOOG) and Twitter. When it comes to the fundamentals, EA has zero long-term debt and nearly $2 billion in cash, cash equivalents, and short term investments. Total assets outweigh total liabilities by almost 3 to 1. Investors looking to game the video game sector should consider Electronic Arts (NASDAQ:ERTS).
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