My ursine crony, Chuck, touched on some fair points in his excellent articulation of the bear case against GameStop (NYSE: GME ) . Nevertheless, I remain bullish.
Chuck is correct when he characterizes the video-game business as cyclical. That doesn't, however, translate to an "avoid" rating on GameStop. To advise investors now to forget about the stock of the retailer in question, or, for that matter, publishers like Activision (Nasdaq: ATVI ) and Take-Two (Nasdaq: TTWO ) , simply because the new cycle has already begun is, to me, unimaginable.
I agree that getting in when the cycle has crashed is probably an ideal time; however, I think there is too much upside left in these stocks to wait for the next nadir. The Nintendo Wii and Sony (NYSE: SNE ) PlayStation 3, for example, haven't even celebrated their first birthday yet. And Microsoft's (Nasdaq: MSFT ) Xbox 360, while in the marketplace more than a year, hasn't reached its second birthday.
The issue over competitive strategies at general merchandise retailers doesn't concern me so much. Gamers like to shop at dedicated dealers for software. They cannot replicate the GameStop atmosphere, and I don't know too many hardcore enthusiasts who want to wait for the mail carrier to deliver the latest Grand Theft Auto title.
The "innovate or die" element does add to the volatility of this sector. However, I'd argue that this is what keeps the video game industry so compelling: The technology continues to improve and becomes more immersive than ever before. The medium has usurped a lot of leisure time that would have been directed to other pastimes, such as TV viewing. This is why advertisers are starting to covet video players and are allocating budgets to in-game branding.
GameStop is worthy of an investor's attention. It should continue to climb as programmers learn the ins and outs of the new processors, giving the retailer a lot of new software to fill shelves with. Shareholders are still in the early innings of the game
Go back and read the rest of the arguments. Then vote for the winner.
GameStop, Activision, and Nintendo are
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Fool contributor Steven Mallas owns shares of Activision. As of this writing, he was ranked 10,682 out of 28,200 ranked investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
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