Video Games May Exceed Expectations

The best money I ever made was a $100 USD from a sweepstakes on a box of Cap'n Crunch cereal. I was only ten years old. The check showed up decorated with a colourful image of the Cap'n. Potentially more to shut me up than essentially believing it was real.

I walked out $100 richer.

With $100 burning a hole in my pocket, I had to have a Nintendo game system. It seemed to be a great purchase. I was pumped up to take home some cheap entertainment.

The old technology is a far cry from what's available today. The concepts are the same. Games take you to new worlds where you are a hero or villain...

It's not just children turning to Nintendo games for entertainment. The global economy is heading into a prolonged recession. Rising unemployment, home values tanking, and stock portfolios... Let's not even go there. All of this bad news makes me want to head for a new world. But since commercial space flight is still a few years off, I will select a Nintendo game to take me there today.

I'm not the sole one choosing video games. There's an explosion in Nintendo game play - also called "gaming".

There's an entire generation of "gamers" that grew up playing Playstation games. They could be older but they haven't quit purchasing Playstation games. Why? Nintendo games. Why? Computer games offer days of entertainment.

Did you know Playstation games sales and earnings grew in past recessions?

We're already seeing the crunch in consumer spending hurt shops. But the three major video game makers all rolled out new systems during the past few years - Nintendo's Wii, Microsoft's X-Box 360, and Sony's Playstation 3.

Video games are completely integrated into cultures around the world.

Their income are growing at virtually 35%.

Here's their secret weapon.... They are prepared to move on to something else.

Then the store turns around and sells it at a discount to the most recent version of the same game.

Used games are a huge and growing part of their business.

Who's this successful company? GameStop.

GameStop (GME) is the world's largest video game retailer. With over 5,557 stores in 17 countries (they just added an 18th country and 332 more stores with a purchase of France's largest retailer), they are the biggest by far.

Their secret weapon drives 90% profit margins on used games.

Used video games are the cheapest way to pick up a Christmas present for the gamer on your list.

the least expensive way to explode.

Video game sales have weathered this recession well. This stock's been unfairly lumped share price is going with all consumer discretionary stocks.

If they meet current estimates, look for a quick bounce back from its recent lows.

If you can handle some short-term volatility, Gamestop should make a great rally at the end of this year and the beginning of '09. Longer term I see this stock retesting its 52 week high of over $63.
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