| Leeb's Market Forecast Analysis and Tips

Electronic Arts

Updating the Best from the Brainiest

All the stocks in FundFinds remain buys

FundFinds is a stock portfolio with a difference. We don’t look just for stocks we like—we first look for funds we like and then seek out the newest, or biggest, or most unusual of their holdings. Next we evaluate those holdings using our own stringent criteria. If they make the grade, they join FundFinds.

Using this approach, which lets us benefit from the expertise of top fund managers, we’ve accumulated a diversified group of 16 stocks. They all remain buys.

Our first picks, from Sequoia fund, were giant pharmaceutical chain Walgreen and rug maker Mohawk Industries.

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The Joy of Games: Scoring with Electronic Arts

Plus plaudits to our portfolio last quarter and sales of Cardinal Health and Intuit

If you’ve been following our Growth Portfolio recommendations, we don’t think you’re complaining. In TCI’s first full quarter (the fourth quarter of 2003), the portfolio climbed more than 16 percent, outperforming a peppy S&P 500 by nearly 5 percentage points. Every group and risk classification participated, and only one stock—Weight Watchers (which we still like, see p.11)—was down by more than 1 percent. Gains of 25 percent and more were chalked up by favorites ranging from Apex Silver to Tyco to H&R Block. Our energy stocks also were strong, though they remain cheap relative to the market and the current level of energy prices. These results didn’t stem from any black boxes—just diversification, an abiding emphasis on low PEG ratios, and a lot of elbow grease to ensure our growth and earnings estimates remain on target.

We’re making two sales and one new purchase.

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WHAT THEY’RE BUYING

Calamos Growth’s front-end sales charge may understandably deter some investors. But nobody has questioned the ability of the fund’s managers to pick good stocks. And when management adds to an existing position, that stock is worth an especially close look.

During the past quarter, Calamos significantly beefed up its holdings of Electronic Arts (ERTS), making it the fund’s second-largest position. Electronic Arts is the biggest U.S. developer, publisher, and distributor of videogames, with more than $2.9 billion in sales. It’s a leader in all parts of the interactive game market, producing and distributing titles for PCs, Sony’s PlayStation, Microsoft’s Xbox, and Nintendo’s GameCube. By continuously gaining market share, the company has increased sales even during periods of overall industry decline. (In the second quarter of 2003, revenues for Electronic Arts grew by almost 17 percent, while the industry showed a 1 percent decline.) It has almost no debt, and its management team is as sharp as they come.

Even if you’ve never heard of Electronic Arts, you’re probably familiar with some of its products.

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Weekly Update 07-26-04

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To say the least the past several weeks have not been heartening. There has been a lot of selling in a number of our stocks despite some very good news. Electronic Arts, e-Bay, Citigroup, along with many energy stocks were hard pressed for no apparent reason. Indeed both ERTS and EBAY and C announced better than expected earnings while the energy stocks have recently been weak despite very strong energy prices. This kind of mindless selling is often a sign of a market bottom.

What is true for a handful of our stocks is true for the market in general as stocks have lost ground for six consecutive weeks despite good profits, still low interest rates and reassuring statements from Chairman Greenspan. Typically when stocks sell off despite good news it is a sign something is wrong. And while I do think the market is beginning to sense a swing to inflation along with the intractability of higher energy prices, I would still bet on one more rally. Mindless selling in good stocks is perhaps the strongest argument.Read more...

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