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Gamers Flirt With Bargain Bin

Shares of video-game publishers are nearing rock-bottom prices, but is it time to start betting on a rebound?

That depends on who you talk to and how long you feel like waiting. Some investors, for instance, see short-term plays to be made in at least some of the names -- Electronic Arts (ERTS) comes up repeatedly -- in the run-up to the holiday season.

"Clearly, there are big catalysts on the near-term horizon," says Darren Chervitz, a research analyst at Jacob Asset Management, pointing to the expected release this fall of new game machines from Sony (SNE - Get Report) and Nintendo. "When the market environment gets better, as we get closer to the holiday season, these stocks will benefit," adds Chervitz, whose firm is long EA and THQ (THQI).

Others buysiders say that with publishers' stocks having sunk so low, they're also starting to look good for the longer term. Activision (ATVI - Get Report) and Take-Two Interactive (TTWO - Get Report) both hit 52-week lows this week, while EA and THQ are within spitting distance of theirs.

Thanks to the selloff, many of the stocks have started to look particularly cheap, relative to where they've historically traded, especially for what has been one of the fastest-growing sectors. For instance, excluding net cash, Activision is trading at about 15 times next year's expected earnings and Take-Two at about 12.

"We're there. We're still buying. We still think it's time to be buying," says one hedge fund analyst who asked to remain nameless, but whose firm is long shares of EA and Take-Two and is looking at Activision. Although short-term results at many of the firms won't be good, "longer term, we're definitely not worried," the analyst says.

Still, other investors say that the best play right now is to simply stay away. Even if these stocks rally going into the holidays, they'll likely sell off afterward, just like they did last year. And the stocks likely won't pick up for good until sometime next year -- if that soon.

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SYM TRADE IT LAST %CHG
THQI $0.31 0.00%
ATVI $25.26 0.00%
MSFT $46.86 0.00%
SNE $30.92 0.00%
TTWO $27.37 0.00%

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S&P 500 2,107.39 -13.40 -0.63%
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