Video Games are Still Compelling

Through the reckage today, I noticed that Deutsche Bank made a big upgrade today on video game maker THQ (symbol: THQI). Deutsche Banks upped the price target to $6, which sent the stock up 20% today. This is rather interesting because THQ reported Wednesday and posted a wider-than expected lost. Activision Blizzard (ATVI) reported after the bell today and beat estimates, sending shares up about 3% in AH trading. I looked at firms today and balance sheets for the industry players are rather interesting:

THQI - Nearly 48% of the stock is cash. It has the highest risk of any in the group and is the most sensitive to market fluculations. YTD return is 20% and has no long-term debt.

ATVI - Solid company with strong growth in the online gaming though WarCraft and the new Guitar Hero is due out in June. It also got added to the Goldman Sachs conviction buy list with a $14 or $15 price target. 14% of the stock price is cash, has no long-term debt, and $3 billion in cash.

TTWO- A classic RF favorite. Has had a big run since the $6.25 purchase but still is cheap in some aspects. Nearly 30% of the stock price is cash and they have no long-term debt. This year will be weak for them but they have a monster cash cow in Grand Theft Auto. In my view, they will probably lose money every quarter until GTA is reflected in their earnings. If they can become profitable, without GTA, the stock will shoot higher. There is also takeover rumors in this one.

ERTS- This is an interesting one. There are many rumors that Apple is in talks to buy ERTS but I don't know if that is true. The options are trading very heavy in volume but it's interesting. About 32% of the stock price is cash but the problem is that they are losing money. They have profitable sporting games but need to get their operations in manner. However, ERTS has no long-term debt.

All in all, the sector seems very attractive because of their balance sheets. Right now, the only profitable one is ATVI. Video game sales fell a little last month but none of these firms seem to deal with liquidity issues and for the most part, video game sales are stable and growing. In addition, each of these game makers have different niches, which fits all audiences. The speculative play is THQ but their product portfolio is not the best; however, the DB analyst seems something. I might buy one of the four soon but want to research it a little more.