This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Next Generation's Software Growing Pains

With three new game machines expected in the next year -- and two new handheld game devices already on the market -- this is a great time to be a gamer.

What remains to be seen is whether it will be a great time to be a game maker -- or an investor in such companies.

The launch of Microsoft's (MSFT) Xbox 360 this week will inaugurate the latest console cycle, a ritual that begins every five years or so. Each successive cycle has eventually led to bigger sales, bigger profits, and surging share prices for the top players.

( TheStreet.com this week also looked at how Microsoft's rivals will cope with the ballyhooed rollout; how far Microsoft will make it into consumers' living rooms ; and what a game is worth .)

But in the short term, the transition to new machines typically means trying times for makers of game software: slowing sales, rising costs, and stumbling stocks. Worse yet, the transition can also be the beginning of the end for weaker companies that just can't afford to keep up.

For investors, then, making money off the transition becomes a game of timing and educated stock-picking.

Count Joe Spiegel, a hedge fund manager at Dalek Capital, among those who believe it's too early to invest in the game software companies based on hope about the next-generation consoles. Sony (SNE) and Nintendo won't come out with their new machines until next year and Microsoft will sell only a limited number -- likely fewer than 2 million -- this holiday season. That's too small a base of users to really boost software companies' results, or their stock prices, he argues.

"People may be getting too excited too soon," he says. "If you're looking at making investments based on next-generation for results this year, you're making a mistake. You're being blinded by hype."

But other investors say the time to jump on the next-generation train is either now or soon approaching. Even if sales of next-generation games won't be meaningful until sometime next year or beyond, stock prices will likely soon reflect expectations of those sales, if they haven't already, says one fund manager, who asked not to be named.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs