Does Ralph Nader Hate Your Stocks?
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It’s an ugly time to be a game investor these days. Ralph Nader has called video game developers “electronic child molesters,” Atari has started filing for bankruptcy and THQ is being sold off in chunks. Should this lead you to panic about game stocks in your portfolio? Not so fast on the sell button, friend. Assess what you have first.
Modern console games and online multiplayer games are very expensive to produce. They’re like movies now with hundreds of workers contributing to the final product and that means big money going out and (potentially) even bigger money coming in. When looking at your game stocks, consider the size of the company, how well funded they are and how diversified their activities are.
For example, Microsoft (NASDAQ: MSFT) doesn’t just publish video games and make video game consoles. If their game division fails on a big project, the whole company won’t go under. For instance, while most people have been focusing on what Windows 8 is doing for Microsoft, their entertainment division fell 11% in the second quarter. This might seem like dire news, but I think it's largely due to the aging Xbox 360. It's time for a new generation console from Microsoft and we should be getting one in the next year or two. Why do I think that's good news for Microsoft Investors? Because I spend a lot of time on game boards and the buzz and desire for a new Xbox far exceeds any other console out there. Because companies like Microsoft have their fingers in so many pies, a drop in their entrainment division isn't a death knell, or even a big deal.
Even companies that only produce games can still be diversified and resilient. Electronic Arts (NASDAQ: EA) makes all kinds of games, from mobile games that are relatively inexpensive to produce to multi-million dollar hits like the Mass Effect series. While EA has its Battlefield and Medal of Honor series, both of which are exactly the kind of first-person-shooters Ralph Nader was complaining about, they also have successful sports games like the Madden NFL games, NBA Live and the NHL series as well as big fantasy series like the Dragon Age games. EA also has the most successful music game franchise with the Rock Band series, and they own The Sims and SimCity, two of the most successful simulation games ever developed.
Although EA has had its ups and downs over the last two years, with a market cap of $4.59 billion and an overall steady up tick for the last six months, they’ve weathered the worst of the economic nightmare and have figured out how to stay strong. EA is the best of what the video game industry has to offer investors.
If you aren’t comfortable with a company that only produces video games, consider Mattel (NASDAQ: MAT). Mattel is not only in the video game market, but they still produce popular board games and many, many toys. Mattel has been in a slow steady rise over the last few years with 10.58% dividend growth, which given the economic climate, is impressive. Mattel is best known for its toys especially Barbie, Hot Wheels, Matchbox and Fisher-Price, and they produce the Disney/Pixar movie tie-in toys. I’m guessing if you have children or perhaps even if you don’t, you have something from at least one of the product lines mentioned above somewhere in your house.
Mattel generally ties its video games into its toy lines keeping it insulated from the Ralph Nader-esque complaints about violence in video games. Mattel’s quarterly earnings reports are due out next week. They’re expected to be lower than initially forecast, but I still think they’re a good bet long term. They move quickly to cut costs when necessary and always seem to bounce back.
So although it might be an ugly time to invest in the video game industry, it’s not a hideous time. There are bargains to be had right now with companies like EA and Mattel that are strong overall even if they might have slipped some after a disappointing Christmas season. Despite Ralph Nader’s dire pronouncement, video games are here to stay and people of all ages love to play them. Look at your game stocks with a jaundiced eye looking long term and you’ll probably find that you’ll keep more than you sell.
Postjade has no position in any stocks mentioned. The Motley Fool recommends Mattel. The Motley Fool owns shares of Microsoft. 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!