Electronic Arts: Pull-back is a buy opportunity

Posted Oct 6th 2009 10:30AM by Joseph Lazzaro
Filed under: Electronic Arts (ERTS), Stocks to Buy

Electronic Arts (NASDAQ: ERTS) is one game play that's expected to weather the "frugal consumer" era reasonably well, hence I'm Reiterating my Buy rating for the company, first recommended on June 11, 2009 at a price of $21.87.

Near-term, a great deal is riding on ERTS' signature franchises, Madden NFL and NCAA Football, and the company also will have to introduce a new, innovative game if it hopes to maintain momentum created by the earlier franchises. Given that downside risk, there's a Revised Sell/Stop Loss, up to $13 from $11. The First Call FY2010/FY2011 EPS estimates for ERTS are 93 cents to $1.20.

Technically, Electronic Arts' stock chart remains in an uptrend, but it has also been below the pivotal 50-day moving average for about two months: a caution sign. ERTS needs to rise and stay above that average, and obviously hold the $15 mark. Should it fall and stay below both the 50-day MA and the $15, that would represent a technical breakdown, hence the Sell/Stop Loss at $13.

Stock Analysis: Electronic Arts' is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in ERTS now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ERTS position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $13.

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

Tags: gaming, inthenews, Madden NFL, MaddenNfl, NCAA Football, NcaaFootball