With two young children I am reacquainting myself with the holiday cartoon classics. One of my favorites is A Charlie Brown Christmas, where Charlie is ridiculed for the half-dead tree with a few scraggly branches that he picks out a for the holiday production.
We are all living the Charlie Brown Christmas this year, and making due with less. Most people are cutting back on their holiday shopping as they adjust to the slowing economy and higher unemployment.
Frankly, it is a nice change of pace. That said, our reduced spending is, in a sad way, making matters worse.
Companies are retreating en masse, with many reducing or eliminating guidance. It's brutal out there.
The latest victim is video game maker Electronic Arts (NASDAQ: ERTS).
Although there is no must-have buy this season, video games were thought to be attractive for those looking for cheap entertainment. Apparently, that's not the case.
Yesterday, ERTS issued a warning to investors. The company said it now expects to miss already reduced guidance for the fiscal year ending in March. Things have gotten so bad that ERTS is not offering any specifics.
I like the video game space, and commented on ERTS following its reduced guidance in late October. I speculated that investors in ERTS would benefit from an eventual strengthening economy.
The problem is, we're not there yet. This latest surprise merely reinforces that view.
Shares of ERTS flatlined after the news in October. Yesterday, the stock closed down more than 12%. That makes sense given that investors have no idea where future profits will be.
But it would appear that there is more going on here than weakness from the consumer. In fact, other game makers like Activision Blizzard (NASDAQ: ATVI) look to be faring better.
Whatever the cause, investors would be wise to avoid ERTS for the short term. If you like the company, I suspect you will be able to acquire shares at a lower price. ERTS must prove that it has the products that customers want.
At the same time, a stronger economy is needed for what is really a discretionary, feel-good kind of buy. We're not at that point yet.
A barer Christmas tree is not necessarily a bad deal from a cultural perspective, but it sure makes it tough for those selling to the consumer.
Jamie Dlugosch is a contributor to OptionsZone.com.
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