Electronic Arts: Take advantage of the stock's lull

Posted Jun 12th 2009 11:00AM by Joseph Lazzaro
Filed under: Electronic Arts (ERTS), Stocks to Buy

It goes without saying that discretionary purchases are under pressure in the era of the frugal consumer.

By definition, that rules-out most high-tech game plays, but there are exceptions, and Electronic Arts (NASDAQ: ERTS) is one.

I would buy ERTS at these levels, basically on the future strength of three franchises; Madden NFL, The Sims, and Need for Speed. The First Call FY2009/FY2010 EPS estimates for ERTS are 96 cents to $1.29.

Further, even though analysts generally see a 3-7% F2010 revenue decline, I would argue those analysts may be a tad too negative, and the resulting declining in ERTS's stock price has created an opportunity for investors who can tolerate moderate risk. However, it should be noted that ERTS is not for low-risk investors.

Stock Analysis: Electronic Arts is a moderate-risk stock. Consider buying a 25% position in ERTS now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ERTS position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $11.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: erts