The Real Wall Street Story Behind the Maker of <I>Toy Story</I>

Also, will Midway continue to improve on its game?
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Picking on Pixar:

From the day it went public in late 1995,

Pixar

(PIXR)

has been a "story" stock. Sure, there's

Toy Story

and its upcoming sequel,

Toy Story 2

, but the real story is how Wall Street pitches Pixar not as an investment, but as a cyclical trade. Don't forget, this was a company whose IPO was timed to coincide with the release of the original

Toy Story

, a strategy that caused its stock to soar as the stock was sold to gullible individuals hoping to cash in on the story of

Woody

and the gang, only to watch the stock sink after the movie -- the very successful movie -- made its debut.

Such has been the story of Pixar ever since. Go back and look at a chart

before

last fall's rollout of

A Bug's Life

(and read

Alex Berenson's take at the time). And look what's happening now in front of

Toy Story 2

. Last month

Prudential

analyst Katherine Styponias, for example, upgraded Pixar to a strong buy from hold in part because the marketing behind the new movie "should act as a very potent catalyst in propelling the shares closer to our price target." And

Seidler's

Jeffrey Logsdon, upgrading from a neutral to strong buy, wrote that the stock's summertime swoon "provides a nice trading opportunity for nimble, aggressive investors."

And therein lies the trouble: When the call goes out to sell, everybody won't be able to get out at the same time because, as one veteran short-seller says, "Everybody has the same strategy." What's more, after

Toy Story 2

, the next Pixar movie won't be out for at least two years. That translates into a lack of earnings predictability. (Not good for a stock that trades at around 58 times this year's expected earnings.) "It's a fool's game," the short-seller says, "with hedge funds selling to retail."

Unfortunately for investors, Pixar's stock has never been as good as its movies. For its part, Pixar says that, over the long term, it believes its library of films will make this a story with a happy ending. (Fine, but how many chapters are in the book?!)

My, my -- seen Midway?:

At item

here last January questioned the sanity of

Midway Games

(MWY)

CEO Neil Nicastro for selling stock in

WMS Industries

(WMS) - Get Report

(a related company that makes slot machines) and buying shares in Midway, which makes video games -- two companies whose fortunes seemed flip-flopped. "Ask me this question a year from now," he said, "and then ask me if this seems like a strange situation."

It's not quite a year, and quite frankly I had forgotten about Midway until one money manager quoted here at the time singing the praises of Midway -- Chris Warning of

Tallgrass Capital

in Naperville, Ill. -- checked in the other day with an update. "When we talked about Midway the stock was at 8," he says. "Today it trades at 17 1/4. For what it's worth, I still like it here: It trades at 14 times fiscal-year 2000 (June) earnings estimates and they've got some great product coming down the pipe.

"The key for them is to avoid being so 'hit-driven' and get some greenfield products (such as sports --

Electronic Arts'

(ERTS)

franchise) to smooth out the earnings growth.

"In my judgment they're making the right moves to get there. If they achieve just a minor success to that effect the stock's got a lot of room to go

EA trades at 35-times FY 2000 March earnings estimates. Moreover, for the moment anyway,

Sega's

(SEGNY)

Dreamcast

is doing better than expected. Midway has three strong games on that platform. All are selling well while EA has none. Nicastro also brought back to the company the international rights to their games. This could add meaningfully to earnings in the next couple years; most companies in the biz do about one-third of sales internationally."

"Eventually," he guesses, "Nicastro sells this company."

Nicastro couldn't be reached, but one thing's for sure:

Viacom's

(VIA) - Get Report

Sumner Redstone

, no investment dummy and a large Midway investor with a 25.3% stake, has been adding to his position.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.