Will the holiday season bring good cheer to the video-game sector this year?

With the shopping season drawing near, investors are already starting to place their bets. The early line: another mixed season with both winners and losers. But investors differ, of course, on just who they'll be.

"We're just getting to the point in time where guys get their games out," says Joe Spiegel, who runs a hedge fund at Dalek Capital. "It will be interesting to see how things do."

Investors got a potentially good sign Tuesday, when GameStop ( GME) gave its outlook for the third and fourth quarters.

The retailer, which specializes in the sale of video-game hardware and software, expects same-store sales to fall 12% to 12.5% in the current quarter, which closes at the end of this month, thanks to tough comparisons.

But the company expects same-store sales in its fourth quarter to bounce back, growing 8% to 10%. Same-store sales compare results of like outlets that have been open for more than a year.

GameStop, which recently merged with chief rival Electronics Boutique, expects sales to be driven by both hardware and software, said spokesman Chris Olivera.

Although the company has a thriving used-software business, GameStop expects to see "balanced" sales of new and used games, he said.

Another potentially good sign for software sales is the release of new hardware, which typically spurs game sales because customers buy titles to play on their new machines.

Microsoft ( MSFT) plans to release its new Xbox 360 next month, and many retailers are selling the console only as part of a bundle that includes several games and accessories.

Meanwhile, this will be the first holiday season in the U.S. and Europe for Sony's ( SNE) PlayStation Portable (PSP) and just the second for Nintendo's DS, both of which could see a surge in sales.

On top of those factors is that the industry as a whole, and some of the game publishers in particular, are facing easy comparisons with year-ago results.

But not all of the signs are cheerful.

Meeting Demand

On the hardware front, there are indications that retailers may run into some of the same supply constraints that plagued them in the previous holiday season. Last year, both Sony's PlayStation 2 and Microsoft's original Xbox were in short supply.

This year may be the Xbox 360's turn, as some retailers have already stopped taking orders for the product. That would likely limit software sales for the device.

On the flip side, consumers won't buy games unless they have a device to play them on, says Spiegel. Consumers have a limited budget in the short term, and the more money they spend on hardware this year, the less they will likely spend on software.

"If you're buying a Xbox 360 for $400, you probably don't have a lot left over for games," he says.

And consumers may be especially budget-conscious this year. With gasoline prices up substantially this year, home heating prices expected to jump through the roof and thousands of people displaced by hurricanes, some analysts have begun to worry about how much consumers will be able to spend this holiday season.

Consumers are "not going to buy five games, they're going to get three games," says one fund manager who follows the video-game sector. "It costs you a game to get to the store in gas alone," adds the investor, who asked not to be named.

That likely means a more discerning consumer this year.

Spiegel, for one, thinks that Take-Two ( TTWO) is well-positioned. The company's Grand Theft Auto: Liberty City Stories has a good chance of being the must-have title for the PSP, with the potential to encourage sales of the device, he says.

Take-Two should also benefit from its strong lineup of titles for the Xbox 360 launch, he says. And it could have a sleeper hit with The Warriors, a game based on the cult hit movie from the 1970s.

"I think Take-Two is going to do much better than people think," says Spiegel, who is long the company's shares.

But some others are more skeptical of Take-Two. Sony has sold only 4 million PSPs in the U.S., and that means that even if Liberty City Stories is a hit, there's a limit to the number that Take-Two can sell, says the anonymous fund manager.

And the company could have a tough time selling The Warriors because of the movie's limited familiarity among the general public.

Instead, the fund manager thinks that Electronic Arts ( ERTS) and Activision ( ATVI) are the game publishers best poised to do well this holiday season. The fund manager is long both stocks.

In Development

Each company has a strong lineup of games coming out at a time when there won't be a lot of competition, he argues.

Unlike last season, EA and Activision won't have to go up against megatitles such as Grand Theft Auto or Halo.

And both companies seem to be focused on not only developing titles for the next generation but also rolling out games for older consoles, which have tens of millions of existing users.

Activision, for instance, is debuting a new version of its Call of Duty title this fall at roughly the same time for both the Xbox 360 and the older game machines, says Norm Conley, a portfolio manager for JAG Advisors and a contributor to TheStreet.com's sister site, RealMoney.com.

"That's a smart way to do it. Activision ... is trying to milk as much as they can out of the cycle that's ending at the same time that they're hitting pretty solid with the new consoles," says Conley, who is long the stock, calling it his "favorite" play among the video-game software publishers.

But Spiegel has his doubts about Activision. The company is spending a lot on expensive licenses for titles such as Marvel Entertainment's ( MVL) comic book characters, he says.

But few of the company's titles are compelling, he says. Instead, most of them seem like knock-offs of other games, as if the company was trying to "check the box" by making particular games for already well-defined genres.

"There's not really a lot of creative work being done there," says Spiegel, who owns put options on Activision.

Instead, Spiegel sees other game publishers that could have a happy holiday season. Nintendo, for instance, is best known for its game machines, but the company has a strong lineup of games debuting this holiday season, especially for the DS, says Spiegel, who is long the company's stock.

This late in the console cycle, family-oriented games typically do well, a trend that could benefit THQ ( THQI) with its stable of titles based on properties from Pixar ( PIXR) and Viacom's ( VIA.B) Nickelodeon.

But on THQ, the nameless fund manager begs to differ. "THQ? What have they got" for the holidays? "Nothing."

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