It's a wonderful feeling. An indescribable joy. A palpable sensation of serenity and unmitigated excitement.
I refer, of course, to when a stock in an investor's portfolio that has already had a significant run-up hits a new 52-week high. It's always a fun moment. Yesterday, shares of Motley Fool Stock Advisor pick Activision (NASDAQ:ATVI) hit an intraday high of $20.84, the highest they've been over the last 12 months (yesterday, it was the best-performing member of my CAPS portfolio). I purchased some stubs around $13 last year. Not quite at the $10.47 low, but heck, I'm not complaining.
There's no question that Activision sports a higher PEG ratio today than yesterday (according to Yahoo! Finance, the ratio is uncomfortably above 2.0), but I'm not ready to give up on the company just because it seems expensive on that one basis and is at the high point of its trading range; I think it's still in the game, as they say. In fact, when I think about the video-game industry as a whole, I see only further growth potential.
Sony (NYSE:SNE) may be stumbling right now, but I wouldn't count its PlayStation 3 platform out anytime soon. Granted, the price point, simply put, has to come down for Sony to move consoles off retail shelves, but that will happen eventually. Microsoft's (NASDAQ:MSFT) Xbox 360 intends on remaining competitive, and the Wii machine is still seeing great success. This all boils down to one essential concept -- the installed user base of the new consoles is only set to increase. And that's good for not only Activision, but also for publishers such as THQ (NASDAQ:THQI).
There are two great catalysts coming up next month for Activision. Marvel (NYSE:MVL) will celebrate the return of Spider-Man for a third outing, and Activision will be releasing a game based on it for all the major platforms. In addition, DreamWorks Animation (NYSE:DWA) brings the big green guy back next month as well -- the troll/ogre/whatever will be back for his own third entry. Activision will be targeting kids -- and not a few cool adults, I'd imagine -- with its titles based on Shrek the Third. If the movies are hits, then the software should perform well in the marketplace. This should lead to growing earnings potential for Activision, and should help it justify its current valuation.
Yes, Activision commands a premium price these days. It's at the top end of its price range, and some shareholders might be getting antsy, especially since the overall market is also at the apex of its trading range. Here's my advice: Take this opportunity to perform some new due diligence and see what you come up with. With a cool product pipeline that includes strong licensed characters, franchises such as Call of Duty and Guitar Hero, and the advantage of a strong brand name amidst an ever-increasing installed user base of next-generation systems, I think Activision's shares should continue to increase over time. There will be volatility along the way, of that I have no doubt -- but, like Peter Parker's alter ego, I'll hold on tight and swing through it.
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Activision, DreamWorks Animation, and Marvel are all members of the Motley Fool Stock Advisor portfolio (can you tell that the Gardner brothers love superheroes and video games?). Need help with your goal of beating the market? Try Stock Advisor out free for 30 days, with absolutely no obligation on your part. Bottom line -- the Gardner brothers are trouncing Wall Street, and they're having fun doing it, too!
Microsoft is a Motley Fool Inside Value recommendation.
Fool contributor Steven Mallas owns shares of Activision and Marvel Entertainment. As of this writing, he was ranked 14,344 out of 27,066 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
