You may have noticed, there's been a lot of concern about the economy lately. Consumers have finally gotten the news, and retail spending is starting to look ugly. As the numbers trickle in, investors are flocking to recession safe-havens, with companies like Wal-mart, Costco, BJ's, and Dollar Tree (eggs and bread for a dollar, go check it out). These companies make a lot of sense, but as I've discussed in other posts, if you want a sure-fire recession playing, video game stocks are a sure winner.
As you can see in the chart*, this generations domestic console sales are exceeding sales in 2007, when consumers were still spending like crazy. Other than the first week of October (when things were really hitting the fan in the news), consumers are showing they can't get enough of video games. Of course, given that you can play for hours and hours with zero incremental cost once you've bought in, it makes a lot of sense as an entertainment play during bad times.
Better still, the console base in homes is much greater than what it was at this point last year... As a matter of fact, the base is up by 100% over last year. That means that even if every system owner bought 25% less games than they did last year, game sales will still increase by 50% (for example, if you had 100 console owners last year buying 4 games a piece, but 200 console owners now buying 3 games a piece, you are selling 600 games this year vs. 400 last year).
Look for big-named, beaten-down publishers to make the most of this benefit. Take Two (TTWO) and Electronic Arts (ERTS) are both well positioned for a boost here when numbers start to become realized. Activision (ATVI) is solid, but not as beaten down as many others - the upside is still there, just not as much. Finally, Game Stop is down about 60% from it's highs, and is extremely well positioned to sell the most games, as they offer used games that these new console owners will be craving (if you just bought an XBox 360, you will want Gears of War before Gears of War 2). Look for GME sales to outpace any expectations that you hear from the street.
* This data was from VGChartz.com (Thanks, please don't sue me!)- which uses soft methods (like exit polling) to estimate sales. These numbers may or may not prove to be entirely accurate, but they've done pretty well in the past.





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