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Gamers Flirt With Bargain Bin

"If I had to make a timing call, I would probably say, 'wait till after Christmas,'" says Tony Ursillo, a buy-side analyst with Loomis Sayles, which is long Electronic Arts. "I'm not sure if we will get the same rock-bottom price in February that they are at right now, but you probably won't have to pay a whole lot more, and you'll potentially miss six months of frustration."

And the sector's investors have already seen a lot of aggravation. Over the last year, shares of EA, the behemoth of the industry, are off 27%. Shares of smaller rivals Activision and THQ have fallen 16% and 8%, respectively, over the same time period. Take-Two, caught up in a string of snafus, including the discovery of the explicit "hot coffee" sex scenes which forced it to pull its latest version of hit franchise Grand Theft Auto from store shelves, has seen its stock fall a whopping 65%.

Although each company is dealing with its own issues, the rocky transition to the new generation of video-game technology has weighed down the entire sector. Sales of games for older consoles have been dropping steadily. While companies have been investing heavily in games for new consoles, they haven't seen much of a payoff yet because there simply aren't enough consoles yet in consumers' living rooms.

Analysts don't generally expect the financial results to rebound until sometime next year when the new game consoles start to gain mass audiences.

Regardless of the longer-term outlook, however, some investors are betting on a repeat of profitable short-term trades. Last year, THQ and Activision and, to a lesser degree, EA, saw a run from the summer until mid-November as excitement built prior to the release of Microsoft's (MSFT - Get Report) Xbox 360 console. With two more consoles on the way this year, similar enthusiasm could lift the sector.

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