Cheat Codes for April

The moribund video game industry received a surprising "power up" last month. Market researcher NPD Group projected that video game sales rose 16% in April, reversing what had been seven straight months of year-over-year declines.

Thanks to the success of Disney's (NYSE: DIS) Kingdom Hearts II game, produced by the fantasy gaming masters at Square Enix for Sony's (NYSE: SNE) PlayStation 2, April was a healthy month for the industry. May might not be too shabby, either; I'm seeing New Super Mario Brothers for the Nintendo DS claim the top spot on Amazon.com's (Nasdaq: AMZN) video game bestseller list.

I wouldn't go ahead and release the confetti just yet, though. Gamers are still mostly on the sidelines until they see what the PlayStation 3 and Nintendo's Wii have to offer when they hit the market this fall. They will join Inside Value recommendation Microsoft's (Nasdaq: MSFT) Xbox 360, released back in November, to complete the rollout of all three next-generation consoles.

Even with all three systems out for the 2006 holiday season, the video game industry may not truly bounce back until after the early adopters have paid a premium for their systems, when prices fall and the new gaming devices fully penetrate the mainstream.

That may be problematic if your entire portfolio consists of shares of THQ (Nasdaq: THQI), Take-Two Interactive (Nasdaq: TTWO), and Atari (Nasdaq: ATAR), but it's not as if you didn't see this coming.

Because video games are a cyclical business, now may be a good time to collect some of the more attractive names on the cheap. Motley Fool Stock Advisor has recommended a few software publishers and a specialty retailer in the area, along with Amazon.com and Disney.

The financial recovery isn't likely to materialize until 2007 at the earliest, but if you wait until then, the stocks may not be trading this low. That's the risk you take when you play the game.

Longtime Fool contributor Rick Munarriz loves playing video games and he does own shares in Disney. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.