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Gamers Flirt With Bargain Bin

And some investors are betting that EA will be the largest beneficiary. The Madden NFL maker has lowered its outlook so much that surpassing those targets won't be difficult, they say.

The company appears poised to post a better-than-expected quarter later this month, as the popularity of the recently concluded World Cup likely boosted sales of its FIFA Soccer title, those investors say. And with a relatively strong lineup for the fall compared with its rivals, the company should continue to see better-than-expected results, they say.

"The risk/reward is good" with EA in the short term, says a hedge fund manager who owns the stock as part of a near-term trade. "For the long term, I don't know."

But some investors believe the short-term play is too risky. Many are worried about the strength of consumer spending this fall, particularly if the economy goes into recession. And few believe publishers will benefit all that much from the new consoles in the short term to make a difference for their stocks.

"Developing games for the next generation is going be obscenely more expensive and [at least initially], there's not going to be enough units to offset the increase in the expenses," says another anonymous hedge-fund manager, who is short THQ and Take-Two. Now is a better time to go long the sector than it would have been six months ago, "but I would probably hold off for a few more months. It's tough to hit the bottom."
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