NYU's 'All-Star' Portfolio Scores Profits With Video-Game Stocks

As with Activision, the group is still bullish on Perfect World. According to Sangani, Perfect World is "the smallest [video-game] company and the fastest growing with a small market cap ." Sangani says he's waiting for Perfect World's stock price to "come down a little bit before I put a position back in."

Take-Two, With Feeling

IAG's most recent video-gaming buy is Take-Two Interactive (TTWO - Cramer's Take - Stockpickr), the publisher best known for its Grand Theft Auto franchise. On Dec. 11, the group added to its All-Star portfolio for $17.44 per share.

Sangani sees Take-Two as a possible buyout candidate and believes that the anticipated release of Grand Theft Auto IV early next year will be a big hit for the company. That's not to say that the company isn't without its flaws (see "Take-Two Struggles to Stay in the Game").

Hedging With Electronic Arts

Despite, as Sangani puts it, the IAG's "confidence in the video-game software cycle, with a slight premium on its expected forward earnings multiple ," the group decided to short a small position in Electronic Arts (ERTS - Cramer's Take - Stockpickr) as an industry hedge on concerns that Electronic Arts' key titles may not live up to expectations (see "Activision Deal Finds EA's Weak Spot").

As evidence of this, Sangani cites the company's recent price reduction on games such as Madden NFL, NBA Live, Medal of Honor and others. Sangani adds, "Despite enthusiasm following the companies recent quarter , Deutsche Bank put a sell rating on the stock, noting the premium on shares."