Are These 3 Gaming Stocks Right for a First-Time Investor?
Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently, Matt Koppenheffer, my brother and current writer/analyst at The Motley Fool, offered up a challenge. He said, "Dave, someone needs to make a statement! Someone needs to prove to the millions, upon millions of people out there that anyone can become a successful investor."
Okay, so maybe it wasn't quite that dramatic, but regardless, the gauntlet had been thrown down! And I have accepted the challenge. Like Apollo Creed and Rocky Balboa before us my brother has vowed to train me on my quest of becoming a successful investor. And I, in return, have promised never to allow him to be beaten to death by a Russian.
What makes me so uniquely qualified to bear the torch as the People's Investor? Good question, I'm glad I asked. I'm 24, so life hasn't yet worn me down enough not to get excited about a new challenge. And I have a BS in Psychology, which means that, for one, I have research skills that could make a grown man cry. But, maybe more importantly, I have studied the myriad ways that people can be mistaken, biased, or just plain crazy. And from what little I’ve learned about investing thus far, people being just plain crazy seems to have a lot to do with what goes on in the stock market.
More important than what I do have, though, is what I don't, and that's experience. I have few, if any, preconceived notions about investing. I'm a ball of clay, prime for molding.
So I decided to start small. I'll analyze, by my humble means, three companies. However, for the sake of fun I plan to do so by answering a "Foolish" question.
This week's question: Are video games really a waste of time?
Let's take a look at some of the most popular publicly traded companies in the video game genre.
- Activision Blizzard (NASDAQ: ATVI)
The first thing I'm looking for is stability. Though Activision Blizzard in its current form has been around since 2008, Activision itself was founded back in 1979. Video games have come a long way since 1979, but suffice it to say that Activision is no spring chicken.
Next, I want to be comfortable with – and be able to easily understand – how the company makes its money. As a game developer, Activision lives and dies to a large extent on what it’s able to produce. That said, while there is big potential – and big risk – that comes along with Activision cooking up hot new games, what’s great for investors is the solid foundation of key franchises it can keep milking like Call of Duty, Warcraft, and StarCraft.
Finally, as a bit of a cheapskate, I want to at least consider how much the company’s stock will cost. With the stock currently trading at just 13.5 times its last year’s profit, it certainly doesn’t seem like investors have to ante up to buy shares of Activision.
2. Nintendo Co. (NASDAQOTH: NTDOY)
As one of the original Godfathers of gaming, Nintendo has set the standard when it comes to stability and longevity. I don’t have much of a concern here.
Looking at the big picture it hasn’t always been a smooth ride for Nintendo. The NES and Super NES were dominant. But the sun seemed to be setting on the titan of gaming in the mid to late 90s as Nintendo looked unable to compete with companies like Sony, with its Playstation, and Microsoft and its Xbox. However, with the release of the Wii, Nintendo was able to push the sun back into the sky and prove to investors they’ve still got the right stuff.
Profits have been less than impressive in recent years for Mario’s maker, and that makes the stock look pretty darn expensive. However, in this case I think the bigger question is whether profits will make a comeback, and with the disappointment in the launch of the Wii U there are still quite a few question marks surrounding Nintendo’s future.
3. GameStop (NYSE: GME)
Once again, we’ve got a company that’s no newcomer to the dance. Started under the name Babbage’s in the mid 1980’s, it’s fair to say that GameStop has put in its time.
I can’t say that I’m particularly excited about brick and mortar, especially in the video game realm. But, as it turns out, GameStop is more than just the corner shop at the mall. Like Nintendo, it’s found a way to survive by creating a niche – and for hardcore gamers, particularly those on a budget, GameStop offers a great place to buy and sell used games, get magazines for tips on better game play, discuss games with knowledgeable staff, and of course pick up the hottest new titles.
It would appear that I’m not the only one skeptical about brick and mortar in the video game world. Judging by GameStop’s price-to-earnings ratio (after adjusting for some one-time stuff over the past year), investors aren’t hot on the company in the least.
Is it time to tell moms everywhere that video games aren’t a waste of time? Well, I’m not sure I’m ready to go quite that far yet. However, I do think that there’s some promise in all three companies I’ve briefly discussed here. What’s in store next, then? Over the next few days, I’m going to pull out my microscope and take and even closer look at each one to see whether it could be worthy of an investment.
PeoplesInvestor has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!