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Tickers in this Article: ATVI, ERTS, MSFT, NTDOY, SNE, THQI, COOL
The results are in. The third quarter of 2009 was horrible for entertainment software. These stocks actually lost about 12% in a fantastic market environment. Knowing which stocks have been dragging is valuable information for two possible reasons. First, these stocks are more than ripe for a reversal. Second, these stocks have some seriously bearish momentum.

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Here's a closer look and a prediction.

The Real Reason for Anemic Numbers
Two video game behemoths that didn't do so well were Activision-Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:ERTS). Many of the stocks with much smaller market caps did quite well, despite the fact that the S&P 500 Home Entertainment Software Index lost ground.

That may be a reflection of the fact that video games sales were down for the sixth straight month in August. The theory is that gaming - once thought immune to recessions - finally began to suffer under the weight of this economic contraction.

I'll offer an alternative point of view though - one that offers a little hope.

The problem isn't tightened purse strings, as much as it is a lack of hot games. Compared to late-'07 releases of Activision's Guitar Hero and the release of Grand Theft Auto IV, Super Smash Bros. Brawl and Mario Kart for Nintendo's (OTC:NTDOY) Wii, shortly after Guitar Hero's launch, the year-over-year comparisons during Q3 shouldn't have looked all that great. There weren't any must-have games being release.

There were three bullish prompts that may just put some pep back in these stocks though.

On the Brighter Side
The first tidbit is just the realization that nearly half of all video games sales come in the fourth quarter of the year. Yes, 'gloom and doom,' 'a market crash lies ahead,' blah blah blah. It's obvious that the market's not bullet-proof, but consumer spending was up 1.1% in August for a reason. It may not be the best Christmas season on record, but 2008's numbers would be hard not to beat. (Learn how consumer spending can be used to provide valuable information in Using Consumer Spending As A Market Indicator.)

Something to Get Excited About
Also, some pretty cool games are just around the corner. Band Hero, Left 4 Dead 2, Guitar Hero: Van Halen, Grand Theft Auto: Chinatown Wars and Grand Tourismo are slated for a Q4 release. It may be one of the strongest lineups in years.

Playstations For Sale!
Here's the third and final reason video game sales may surprisingly perk up in the near future - the whole shebang is getting cheaper.

Microsoft (Nasdaq:MSFT) recently cut the price of its Xbox 360 system, and Sony (NYSE:SNE) did the same for its Playstation 3 console. While both platforms are closer to the end of their lifespan than the beginning, the drop in price is likely to gradually draw in new gamers who wouldn't own a console with at least a few decent games in the library.

Prognosis: Positive
Needless to say, the video game manufacturing business is a bullish opportunity, following its non-performance in Q3, while the rest of the market marched higher. That doesn't necessarily mean Electronic Arts and Activision-Blizzard are the first best bets though. It's still all about great games.

So who makes great games besides Activision? Majesco Entertainment (Nasdaq:COOL) is a good example of a small, off-the-radar game designer worth a look.

Oh, the stock's been getting trashed lately, largely because Majesco added $9.6 million worth of shares into the float in a fund-raising effort. The decline is slowing down though, as the selling volume is drying up. Now the market can return its focus on the combined 24 cents per share the company is expected to earn during the current and next quarter. It's certainly do-able, and Majesco has put out a slew of new titles in August and September.

THQ Inc. (Nasdaq:THQI) is another company that's supposed to have a much better 2010 than 2009. With a 2011 forward-looking P/E of 18.3, it's an affordable idea if it can deliver on the promise.

Whichever you choose, the next three months for these stocks to be considerably better than the last three. (For additional reading, check out Power Up Your Portfolio With Video Game Stocks.)

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