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VIDEOFive Reasons to Buy Take-Two Stock Now
By
Michael Comeau
Jul 14, 2009 10:15 am
Today's dip looks like a smart entry point.
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It sounds pretty dire, but I used today's dip to begin a position in Take-Two.
1. On August 2, 2007, Take-Two delayed its flagship Grand Theft Auto IV, sending the stock down 14% the following day. Following that capitulation, investors bid the stock up nearly 40% in just a couple of months. After all, those GTA-driven dollars would still end up in Take-Two's cash register -- just later than expected. I'm willing to bet the same dynamic will play out once more.
2. The Take-Two of today is much better capitalized than the one of 2007. With $180 million in cash, it has more than enough dough to keep the company going until the blockbuster Bioshock 2 rolls around. It won't need to raise capital to get it through the rough times.
3. Pushing Bioshock 2 back would also allow it to further benefit from console price cuts -- especially of Sony's (SNE) PlayStation 3. That console is being eaten alive by the Nintendo (NTDOY) Wii and the Microsoft (MSFT) Xbox 360, and is way overpriced in light of the recession.
Activision (ATVI) CEO Bobby Kotick even recently threatened to pull support for the PS3. The industry's cast of characters are known for public posturing, but it's clear that Sony is facing pressure from all angles, including consumers, to cut the price of the PS3.
The equation is simple: Lower PS3 price = Higher PS3 console sales = More Bioshock 2 sales
4. Plus, Take-Two has some other solid titles coming out next year, like Mafia II and Max Payne 3, and there's always a chance for another takeover bid.
Take-Two's earnings and cash flow stream is extremely volatile, but the asset value is there. We can expect Grand Theft Auto to rain money down upon the company every few years and solid performance out of other franchises like Midnight Club.
5. There's also no doubt that Electronic Arts (ERTS) wants Take-Two's sports licenses - the real motivation behind EA's attempted buy of Take-Two in 2008 was to eliminate competition in sports. So while I think a deal with THQ (THQI) also makes sense, EA could come back to the table to try to scoop up Take-Two even cheaper.
THQ’s UFC Undisputed 2009 game just passed the 3-million unit mark. Great news for that stock!
No positions in stocks mentioned.
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