What's a value stock? It's a question we've been asking a lot around here lately, with guest writer Daniel Hong pondering it most emphatically today. He asks if story stock Netflix(Nasdaq: NFLX), which is up 300% in the last year, is actually undervalued. Not the type of gold mining most tried-and-true value investors would undertake, but it's just the sort of thing our Hidden Gems prospectors are on the lookout for. Read the article, and then let us know what you think on our News & Commentary discussion board.

In today's Motley Fool Take:

Microsoft Loses the Game

By Rick Aristotle Munarriz (TMF Edible)

While gas prices and your cable bill keep inching higher, you've got to love home electronics. Everything from DVD players to plasma television sets get better and cheaper in time. The same goes for video game consoles.

Yesterday, the retail price for Microsoft's(Nasdaq: MSFT) Xbox system dropped to $149. That is half of its introductory price. However, folks who figured that this means Mr. Softy is serious about taking a hit on the hardware just to make it up on high-margin software may have been surprised to learn that the company will be discontinuing its proprietary pro football, basketball, and hockey titles.

Done right, these are enviable franchises with gamers buying every annual release to keep their rosters current. Yet, that means beating Electronic Arts(Nasdaq: ERTS) at its own game. That just wasn't a realistic goal. Everyone knows that NFL Fever never stood a Hail Mary of a shot against EA's Madden.

Microsoft will also be backing away from some of its extreme sporting titles. That, too, is another humbling admission that Microsoft wasn't worthy of riding Activision's(Nasdaq: ATVI)Tony Hawk coattails.

It is no coincidence that both Electronic Arts and Activision were singled out as stock recommendations in Motley Fool Stock Advisor last year. Once you have established a popular franchise, it's a license to print money. Now, they have proven that they can vanquish the world's largest software company -- but don't shed a tear for Microsoft.

Microsoft still gets a royalty from every game sold by a third-party publisher. By making the playing field more uncluttered, the thinking is that it will be able to improve its relationship with what had been its rivals on software. While Xbox has fared well against Nintendo's(Nasdaq: NTDOY) GameCube, it has a long way to go before it catches up to Sony's(NYSE: SNE) PlayStation 2.

Yes, having its own flagship line of sporting titles helped differentiate the platform, but if folks were buying the EA Sports games instead, all it created was distractive confusion. If Microsoft wants to unite its wired gamers through what it sees is the industry's eventual destiny -- online gaming -- this is the best way to assure that there is wider compatibility between its core users.

So, sure, Microsoft is conceding the battle but it's doing so in order to team up with its former software enemies to have a shot at winning the hardware war.

Longtime Fool contributor Rick Munarriz enjoys playing on all three leading consoles. Forced to choose, he'd probably be on the Xbox. He does not own shares in any company mentioned in this story.

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Best Buy Looks Unbeatable

By Seth Jayson

They might sound funny when they talk, but those Minnesotans sure know how to run a retail electronics empire. Shares of Motley Fool Stock Advisor recommendation Best Buy(NYSE: BBY) jumped more than 6% in early trading following the firm's fourth-quarter and full-year earnings release.

Here's why: Revenues were up 21% for the fourth quarter and 17% for the year. Best Buy now sells $24.5 billion worth of goodies per year, double what it was peddling five years ago.

Earnings for the fourth quarter advanced 22% -- after backing out a one-time loss from the year-ago period -- to $1.42 per share. For the full-year's numbers, there were plenty of charges for discontinued enterprises, but comparing diluted earnings per share from continuing operations shows a 28% uptick, to $2.44 per share. (This year's generally accepted accounting principles (GAAP) number is $2.15.)

Wading through the numbers and flipping over rocks to look for scary surprises -- a common pastime in Minnesota, yah -- yields very little. Comps had a healthy rise, margins improved, and while SG&A ticked up slightly, it was nothing to scream about. Last quarter, the firm started paying dividends, it has been repurchasing stock, and despite those payouts, it now sits on $2.6 billion in cash.

Its static appliance sales notwithstanding, Best Buy is really starting to look like one of those boring super-success stories that constantly improve, like Starbucks(Nasdaq: SBUX) or would-be competitor Wal-Mart(NYSE: WMT). As Rick Aristotle Munarriz recently reminded us, Best Buy has flogged Circuit City(NYSE: CC) for so long now, you wonder if the chain can even be called a competitor.

Valuation is probably the only concern for investors. With the firm aiming for 15% to 20% earnings growth for the next year, at $51 per stub, the stock trades this morning at 17 times forward estimates of $2.87 per share. That may not scream bargain, but it looks like a reasonable price to pay for a slice of one of the world's premier retailers.

Fool contributor Seth Jayson still enjoys flipping rocks in Minnesota lakes, because crayfish make great smallmouth bait. He owns no stake in any firm mentioned above. View his Fool profile here.

Qu ote of Note

"Be civil to all; sociable to many; familiar with few; friend to one; enemy to none." -- Benjamin Franklin

Steve Case: Hungry for AOL?

By Steven Mallas

Steve Case is allegedly thinking about taking America Online off the hands of Motley Fool Stock Advisor recommendation Time Warner(NYSE: TWX) by putting together a consortium of buyers. Although it's pure speculation at this point, one cannot help but marvel at the possibility -- particularly Time Warner shareholders.

The venerable, erstwhile guru of dialup apparently has a death wish (maybe "challenge" wish would be better phraseology). The America Online service just isn't held in the same esteem it once was. Whatever brand cachet of brand it had has evaporated in the ether of slow connections, frequent throw-offs, and buggy hybrid browsers. People are defecting to lower-cost providers in large numbers everyday. To make matters worse, when people go broadband, they usually don't think of that goofy -- perhaps even creepy -- yellow running man anymore.

If the rumor is true that Case wants his old job back, it isn't necessarily that surprising a development. After all, it was his baby, and he nurtured it into a pretty healthy child. Problem is, now that child is entering its early teens and becoming downright difficult to control.

Plus, peers such as Microsoft's(Nasdaq: MSFT) MSN and Earthlink(Nasdaq: ELNK) are offering stiffer competition than ever before. AOL is still the dominant leader, but looking several years out, reversed roles isn't too far-fetched a notion. Just look at the coupSony(NYSE: SNE) pulled on Nintendo(Nasdaq: NTDOY).

Case probably wants to show the writers of business history that they were premature in painting a picture of a tainted legacy. Bravo for that. It would make a great comeback story. But how should Time Warner shareholders view this move?

As Bill and Ted would say: Excellent!

The merger was a great idea in concept, and arguably can still work. A disciplined execution of synergy and culture reforms could fix the problems the company faces.

Here's the thing though: At this point, Case's ISP is such damaged goods -- both in practical terms and the more intangible light of perception -- that Time Warner might simply be better off divesting itself of the elephantine burden. That way, Wall Street would be in a better position to reward the media conglomerate for a quality portfolio of businesses -- such as its magazine division, HBO, and the studio that brought you Lord Of The Rings and Harry Potter -- sans the drag of a no-growth concern.

Imagine that: The Return of the Case. Makes a great ten-hour trilogy, no?

Fool contributor Steven Mallas still believes in the AOL/Time Warner merger, but is a realist (what a limiting state that is!). He owns no shares of the stocks mentioned in this piece.

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Mo re on Fool.com Today

It isn't easy being a martyr in the world of Wall Street, but Bill Mann's got three guys who had the last laugh. Learn from the anecdotes of three investment pros in Dare to be Wrong.... And don't miss Daniel Hong's last words on mail-order DVD start-up Netflix. The Street-at-large may think this stock is out of juice, but Hong begs to differ. Check out A Story Stock Steal?

In other news:

For a list of all our stories from today, see our Today's Headlines page.