I read an article on CNNMoney.com the other day about video games. The author mentioned that Microsoft (NASDAQ:MSFT) would be showing off its sequel to the Xbox a couple of days before this year's Electronic Entertainment Expo (or "E3") begins May 18. Hardcore gamers just cannot wait for this; can you imagine the next Halo on it, for instance?
Yet here's an interesting tidbit. I was watching a pundit pontificating on the market earlier in the week, and this particular guy seemed unimpressed with the video game software sector. He said he was bearish on the whole group and would sell them all; can't recall the exact reason -- it might have been valuation -- but as we all know, there's a bear side to every argument, and he was taking it.
I don't really care what his reason was; he has a right to express it, and I will now exercise my right to offer the bull argument for video game stocks: See first paragraph.
That's right. Listen -- video games are here to stay, and they are going to grow over the long term. I simply have strong confidence in that idea. Revenues will ebb and flow through the years. But, as far as I am concerned, stocks in sound companies like Activision (NASDAQ:ATVI), THQ (NASDAQ:THQI), and Electronic Arts (NASDAQ:ERTS) would make proper additions to any long-term portfolio. Not necessarily all of them together, however -- to remain diversified, you may want to go with just one. Do me a favor, though, and stay away from Atari (NASDAQ:ATAR); no offense to that company, but it just isn't firing right now. (See this article.)
Whenever I think about the next Xbox, the new Nintendo machine, or the third iteration of Sony's (NYSE:SNE) PlayStation unit, I can't help turning my mind toward one of the aforementioned blue-chip software concerns. These companies are ace licensors of valuable franchises, and they know how to publish and distribute their wares. The new platforms will open up more sales for them, period. It's true that there will be volatility in the stocks as earnings go through expansions and contractions based on where we are in the console cycle -- but over time, Activision, et al., will increase shareholder value by continuously exploiting the world's love of electronic, interactive entertainment -- something that will never go away. I will grant one important bear concern: Great titles are becoming increasingly expensive, since they tend to blur the lines between computer games and full-length movies. Costs will need to be addressed, and admittedly, the jury is still out on that count -- although advertising might provide a solution.
Yet I still can't help agreeing with Rick Munarriz that any dip in the share price of a company like EA can only be a good thing for a patient investor who averages in over the long haul. And consider that Microsoft, Sony, and Nintendo have obvious reasons for making each successive system push the envelope ever further than its predecessor; in this way, the video game will increase its cultural status.
Going back to the pundit, I agree that the reality on Wall Street dictates that certain time periods offer trading opportunities for those who wish to engage in the activity. But for those who prefer long-term, buy-and-hold investing, it's a treat when one stumbles upon a set of ideas that should prove resilient over the years. Video game companies can comprise such a set of ideas. With the new Xbox on its way, investors should begin their own studies of the public concerns in this arena.
More Foolish articles on video game companies:
Related Fool discussion boards: Microsoft, Activision, Electronic Arts.
Fool contributor Steven Mallas owns none of the companies mentioned.
