Nintendo: Wii Love Mr. Market’s Mood Swings

Students of the stock market know Benjamin Graham is to stock investing what Moses is to Judeo-Christian ethics. Graham’s laser-beam insights and resulting pithy advice have made many (including Graham’s famed disciple Warren Buffett) a Wall Street fortune. Over the years I have found Graham’s parable of Mr. Market to be one of the most lucrative investing and trading strategies. As the market experiences wild mood swings, now is an excellent time to load up on my favorite holiday pick: Nintendo (NTDOY.PK).

For those unfamiliar, Mr. Market is the personified version of the stock market. As Graham noted, the price action on the stock exchange does not directly correlate to the value of the businesses underlying shares of stock. Thus, when the market (i.e., Mr. Market) sways with fear, an excellent business may see its stock price decrease. Conversely, when the market rages with greed, stock prices may become much more expensive than the value of the underlying business activities.

We are all aware that recent developments in the credit markets have adversely affected the stock market. However, many excellent companies and growth businesses continue to perform their alchemy turning goods and services into cash. Therefore, as Graham would say, Mr. Market is overly pessimistic and certain high quality companies are currently selling at a discount.

Since the Street begins their holiday stock fetish in September, I have found August a prime month to start snapping up shares of my favorite holiday picks (recall: when possible, always get ahead of the herd). This year my top holiday pick is Nintendo. (My previous holiday picks include Apple (AAPL), Activision (ATVI), Sirius Satellite Radio (SIRI) and XM Satellite Radio (XMSR.)

Since I believe the Nintendo Wii, the Nintendo DS, and Nintendo branded games will be on top of almost every holiday “must-have” list, I believe the stock will trade higher as these lists start hitting mainstream press and analyst notes.

This year, the added juice to my holiday trade is Mr. Market’s sale. I don’t know about you, but I am very confident that when Christmas, Hanukah, and all the other gift giving holidays arrive, the subprime mortgage and LBO credit issues will not work as a persuasive rationale in response to little Johnny and Lisa’s request for a $250 Wii or $50 Super Mario game (not to mention the employed young adult crowd who do not need an institutional mascot to justify a personal reward).

This is my third update on NTDOY, so I am not going to review the gangbusters numbers as I did in a previous review of Nintendo’s quarterly results. Although, I will note that Microsoft
(MSFT) reduced by $50 the price of Xbox360. I think this is a nonevent because the Wii is still $100 cheaper and offers a revolutionary advance in gameplay that neither Xbox360 nor Sony’s (SNE) PlayStation 3 offer.

So, although Mr. Market is a bit pissed at the moment, his current unhappiness is more reason NTDOY will deliver happy holidays.

Disclosure: SmartGuyDH is long NTDOY.PK

Comments

[sabuser:]

This is my "inside information" as a knowledgeable gamer. I believe the default choice for older teens would be the Xbox360 or PS3. However, the price of the Wii certainly prevents much of this from happening. Therefore, if a bigger price drop were to come - Nintendo would be looking at some serious trouble. (Something that cannot happen, because the technology is too expensive compared to the Wii). Nintendo however, has a huge advantage coming up, as top Wii games are about to be released. (But of course in Europe there is a huge factor of piracy, I am not completely sure about the other countries).
As for the Nintendo DS, it suffers from competition with Sony's PSP.

2007 Aug 16 05:57 AM

[Chris Thomas:]

P/E of MSFT: 19.85
P/E of SNE: 35.51
P/E of NTDOY: 13.44

Hmm...

2007 Aug 19 06:01 PM