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A New Wave of “Beatle Mania”… Four Ways to Profit From The Beatles: Rock Band

|Includes: EA, GME, SNE, Viacom Inc. (VIAB)

 You ready for a good ol’ 1960s rock n’ roll flashback, courtesy of four lads from Liverpool?

Amid a buzz of publicity, yesterday was the day that many Beatles fans had eagerly waited for, with the release of a new video game in the band’s name – “The Beatles: Rock Band.”

If you’re not familiar with the “Rock Band” concept, it’s a bit like karaoke, except you play music in addition to singing. Gamers follow along with their favorite musicians/songs, using an electronic drum kit and guitar, and sing the songs, too.

The game is enormously popular, having generated over $1 billion in revenue. And gamers can download individual songs, albums, or catalogs of groups like AC/DC, The Who and The Grateful Dead. So far, they’ve paid for and downloaded over 40 million songs…

Both Paul McCartney and Ringo Starr were part of the creative process and have endorsed the game in the ensuing media hype that developed.

But what about you and me? Well, while we might never be as wealthy as the “Fab 4,” perhaps we can profit from a new wave of Beatle Mania.

These “Fab Four” Stocks Are Set for a “Beatle Boost”

Let’s take a look at four companies that could make big bucks off the The Beatle’s Rock Band release…

  • Viacom (NYSE: VIA.B): This firm should be the biggest beneficiary of the game’s success. Its MTV unit owns Harmonix Music Systems, the creator of “Guitar Hero” and several “Rock Band” titles, including “The Beatles.”

Viacom also owns cable TV staples such as Comedy Central, VH1, Nickelodeon and CMT. In addition, it produces and distributes movies through its Paramount Pictures division.

However, Wall Street likes Viacom about as much as conservatives liked Paul, John, George and Ringo’s mop-top haircuts in the 1960s. Analysts currently have eight “Buy” recommendations on the stock, 17 “Holds” and eight “Sell” ratings.

Keep in mind that most analysts rate stocks as “Buy.” A “Hold” essentially means sell, while an outright “Sell” rating means “this stock is so bad, even we don’t want the firm’s investment banking business.”

And note that Wall Street analysts have a horrendous track record when it comes to rating stocks.

So given my contrarian nature, I like stocks that have lots of “Hold” and “Sell” ratings, since analysts are often behind the curve and afraid to go against the grain. When a company turns around, they’re then forced to upgrade the stock and that often leads to gains in the share price.

And as for Viacom, the future doesn’t look as bad as they portray it. The company is expected to earn $2.05 per share in 2009, followed by a nearly 10% increase to $2.25 next year. In 2011, Wall Street projects earnings of $2.61.

The stock trades at just 12 times this year’s expected earnings, 11 times next year’s and just 1.1 times its trailing 12-month sales.

Viacom shares seem cheap. And if the game sells as well as I believe it will, shareholders will reap the reward.

  • Sony Corporation (NYSE: SNE): Sony owns partial rights to The Beatles’ music catalog. That means every time a Beatles record is purchased, a song is downloaded, or a tune is played on the radio, Sony rings the register. The rights are held by Sony/ATV Publishing, a joint venture between Sony and Michael Jackson’s estate.

Of course, Sony has other businesses, too, aside from waiting for oldies radio stations to playYellow Submarine…

It makes the ever-popular PlayStation video game consoles, on which users can play “The Beatles: Rock Band” (in addition to Microsoft’s X-Box and Nintendo’s Wii systems). Sony also makes a mass of other electronic equipment and is in the television and movie businesses.

Wall Street isn’t exactly enamored with the company at the moment. There are 12 “Buy” recommendations against 10 “Holds” and one “Sell.”

After a series of missteps, Sony isn’t expected to be profitable this year or next. But it does boast a strong film division and restructuring could result in its weak stock price rebounding.

  • Electronic Arts (Nasdaq: ERTS): The company is the publisher of “The Beatles: Rock Band.” Like Viacom and Sony, Wall Street thinks it’s also going to be a Hard Day’s Night for ERTS. There are 14 analysts who believe the stock is a “Buy,” while 15 say, “Hold” and three have a “Sell” verdict.

In the face of stiff competition and few exciting new titles, Electronic Arts is expected to lose 30 cents per share this year. But in 2010, the books are expected to turn into the black, with the company projected to earn 97 cents per share, rising to $1.27 in 2011. In addition, it has over $2 billion in cash and no debt, and enjoyed recent success with its EA Sports Active.

The stock has suffered a beating, but has thus far failed to mount much of a rally, unlike many others who also took a hit in the downturn.

But should “The Beatles” and other games help turn things around, Electronic Arts might wind up being a great contrarian play.

  • Gamestop (NYSE: GME): If you have a teenager, chances are they already spend Eight Days A Week browsing and playing games at Gamestop, a leading video game retailer in the United States, Europe, Canada and Australia.

The firm should benefit from increased consumer traffic related to purchases of “The Beatles,” plus a host of other games and accessories that it sells.

In contrast to the other three companies, Gamestop is much more popular, with analysts in giving it 14 “Buy” ratings and just two “Holds.” While earnings growth isn’t exactly stellar – EPS is estimated at $2.40 this year and $2.55 next year – the stock is cheap at 10 times this year’s EPS.

If you want to talk “best of breed” in the video game retailing world, Gamestop is it. Gamers can sell back or trade their games at Gamestop for other titles, which gives the company an advantage over retailers like Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY). Plus, in addition to browsing the store, gamers can test-drive the games on the demo consoles and talk with employees, who are usually gaming enthusiasts, too.

Gamestop is gaining market share and is cheap enough to buy at current levels. If the upcoming holiday season is particularly strong, look for it to beat estimates and send share prices higher.

These four stocks have the potential to generate significant gains and put money in our pockets. And I hope we manage to make gobs of it. Just remember, money Can’t Buy Me Love.

Marc Lichtenfeld

Disclosure: No positions