Navellier Growth: your source for market-beating growth stocks

 

The pressure of a weakening economy has led consumers to become more conservative in their spending habits, particularly in regard to how they spend their money on entertainment.

Consumers are frugal when it comes to spending money on entertainment, and as a result more and more people are turning to video games as a cost-effective solution. The price of a dinner or a movie these days is equivalent to the price of a video game that quantitatively provides more hours of entertainment.

This trend is showing up in our PortfolioGrader ranking systems as companies that provide video game technology are demonstrating tremendous revenue and earnings growth, as well as margin expansion and institutional buying. In recent months we have added several new names to our growth portfolios that are benefiting from this powerful trend in the economy.

The most obvious gaming stock in our Blue Chip portfolio is GameStop (GME). The company is one of the leading retailers of video games, video game consoles and accessories. In 2007, the company's revenues grew by 33%. By comparison, its competitors' sales grew by 24.7%. More impressively, however, is that GME opened over 586 stores last year, 328 of them in the United States and 258 abroad. This whopping growth was funded by operating cash flow, not borrowed money! Company officials estimate that they will open an additional 175 to 200 store in 2008, with half of these in the rapidly growing international markets.

Reflecting the new desire for cheaper entertainment, used game sales grew by 35%, while the family entertainment category grew by a stunning 141%. As the industry continues to explode worldwide, the company expects earnings to increase by at least 25% in 2008. Analysts agree, and are scrambling to raise their earnings estimates.

GameStop possesses everything I look for in a growth stock and will likely continue to provide the type of business growth and stock price performance Blue Chip and Emerging Growth subscribers have come to expect.

Another Great Gamer

Activision (ATVI), one of the latest additions to my Blue Chip and Quantum Growth portfolios, is a manufacturer of video games. The company already has some of the hottest titles in the industry including mega hits Call of Duty and Guitar Hero. The company also expects to complete the merger with Blizzard Entertainment, which will give them ownership rights to the popular massively multi-player online role-playing game World of Warcraft.

ATVI officials also expect the company to grow two times faster than the broad market. So far they are delivering the type of powerful performance that is the hallmark of a great growth company. Last quarter, revenues were up 80%, earnings almost doubled and profit margins were at an all time high.

For 16 years, the company has had higher year-over-year revenues, a truly impressive accomplishment in the fickle entertainment business. The company's positive earnings surprise has lasted 4 quarters in a row and analysts are raising their future estimates to meet the company's accelerated performance. Activision continues to benefit from industry trends, and institutions have taken notice. The stock is under the powerful buying pressure I look for when picking stocks for my Blue Chip and Emerging Growth portfolios.

But these stellar stocks aren't the only stocks in my portfolios benefiting from this powerful trend. Apple (AAPL) and Research in Motion (RIMM) both offer mobile game playing capabilities on the iPhone and the Blackberry, respectively. Dolby Communications (DLB) provides sound and video technologies for many of the gaming platforms.

As consumers search for ways to maximize the breadth of their entertainment dollar, more and more consumers are finding value in video games. As a result, these video game stocks, subject to the subsequent increase in buying pressure, will continue solidifying their powerful fundamentals. Having met these criteria, I will continue to recommend them in my growth stock portfolios.

All of my newsletters have a risk-free offer right now. Check out BlueChip Growth, Emerging Growth and Quantum Growth to see how they can guide you to finding the very best stocks that will help you become a more successful investor.

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