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Slow and Steady Keeps THQ in the Game

Delay of its hit game won't bring massive penalties.

SAN FRANCISCO -- Just because THQ's (THQI) video games won't shine as brightly as competitors' this holiday season doesn't mean the stock will lose its luster.

Juxtaposed against the most anticipated titles from rivals

Electronic Arts

(ERTS)

and

Activision

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, due out this fall, THQ's lineup of older hits, such as

Ratatouille

, Nickelodeon-licensed titles, its franchise staples and sequels to its original games,

Stuntman

and

Juiced

, seems to have produced investor anxiety.

But fears that THQ may be lost among its higher profile rivals during video-games' most important selling season may be overblown.

Shares of THQ are down 23% in the three months since May 10, precipitated by the company's announcement to

scrap a

Sony

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PlayStation 3-specific version of its hit game,

Saints Row

, first released in 2006.

In the same period, Electronic Arts shares are up 7%, and Activision's are off 8%.

EA is set to debut music-based game

Rock Band

and

Madden NFL Football 08

; Activision is drumming up interest for

Guitar Hero III

and

Call of Duty IV

, scheduled for the fall.

Comparatively, THQ has low-profile

Bratz

and

Cars: Mater-National

, the upcoming sequel to

Cars

, as its holiday fare.

Those games are likely to have wide appeal among consumers shopping for children. And casual gamers will go for titles featuring Nickelodeon-licensed characters in

Nicktoons

,

SpongeBob Squarepants

and

Avatar

; while loyal sports fans may pick

WWE vs. Raw Smackdown 2008

or

Juiced 2

from THQ's franchise stable.

"THQ gets a bad rap because its games for children are not as exciting as a

Call of Duty IV

TheStreet Recommends

or a

Grand Theft Auto IV

," says James Lin, an analyst with MDB Capital, which makes a market in THQ shares.

But that doesn't mean its games won't find their customers. THQ could also profit from the low expectations and the stock selloff in the last few weeks, say analysts.

THQ shares ended Friday's regular session up 99 cents, or 3.7%, to $27.75. The stock was off $2.57, or 9.2%, after hours.

"They don't have the greatest lineup," agrees Todd Greenwald, an analyst with Nollenberger Capital. "But I don't think they will get lost.

"Expectations for THQ are not the same as for EA," says Greenwald, which means THQ could post a solid performance even while flying under the radar. Nollenberger does not own shares or have an investment banking relationship with THQ.

The company, which is still smarting from the pain of canceling its blockbuster

Saints Row

game, plans to release the sequel,

Saints Row 2

for both PS3 and

Microsoft's

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Xbox 360 next year.

Unlike

Take-Two

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, for example, which is heavily dependent on its

Grand Theft Auto

franchise, Agoura Hills, Calif.-based THQ believes it can still hold down the fort with its game roster.

Earlier this month, Take-Two dropped 14% on news that it would

push back the release of

Grand Theft Auto IV

from the fourth quarter this year to fiscal 2008, forcing the company to cut its financial outlook.

Shipments Are Sound

Investors could also do well to remember THQ's focus. The company has carved a niche for itself with its children's games, and the company's franchises have also brought stable returns, says Lin.

THQ has said it plans to ship more than 1 million games each of its five original titles --

Stuntman: Ignition

,

Juiced 2: Hot Import Nights

,

Frontlines: Fuel of War

,

MX vs. ATV Untamed

and

Destroy All Humans

-- in fiscal 2008.

"They are always in this position every year, but they have survived many of these holidays," Lin says. "THQ goes for the family casual, mass-market audience, and they get knocked for that."

THQ has also increasingly

called attention to its portfolio of internally developed titles, such as

Stuntman

and

Juiced

as opposed to its licensed games.

Investors should be watching sales of those games in particular to see if THQ can successfully build up its home advantage.

The most interesting of the company's releases,

Stuntman: Ignition

, will launch on multiple consoles on Aug. 28. Additionally,

WWE Smackdown vs. Raw 2008

, which THQ will release on six platforms including the PS3 and

Nintendo

Wii, is likely to become a top-five holiday title.

"Needless to say, we feel really good about our holiday portfolio," says THQ spokeswoman Liz Pieri. "We are releasing games based on proven franchises that perform very well in the holiday time frame."