STOCK IDEAS
In the volatile videogame business, there are some truisms. One is that hardware platforms follow a cycle: débuting, peaking, and falling every three to five years. Another is that players tend to buy the most software in the 12 months after they purchase a new machine, so game sales consistently trail the hardware curve by a year. With 1998 looking like the crest of the wave for the Sony PlayStation and Nintendo 64 consoles, the next 18 months could be a software bonanza.
Of course, the other side of any boom is a bust; mid-decade, many companies saw their stocks cut in half. "The key is to buy in the fat part of the hardware cycle and sell before it slows," says Furman Selz analyst Stewart Halpern. That means getting in now, when several key stocks look undervalued.
Halpern and his peers look for companies that release titles, on schedule, for both the console and PC markets. After Sony and Nintendo themselves, Electronic Arts (ERTS) is the field's uncontested leader. With a P/E in the mid-30s, it's almost twice as expensive as most of its competitors, but it's as close to a sure thing as the sector can offer.
The considerably smaller THQ Inc. (THQI) hasn't missed a shipping deadline for close to three years; given the US$2.04 in 1998 earnings per share that Halpern projects, at around $30 a share it's fairly cheap. If its PC titles sell like its N64 games have, the stock could hit $40 in 1999.
[an error occurred while processing this directive] Furman Selz: +1 (212) 309 8200. [an error occurred while processing this directive]
| NEW MONEY
| Game Theory
