Friday, October 19, 2007

Two quick thoughts: Electronic Arts and Oil

I'll post full writeups on both of these topics within the coming days, but I wanted to publicize some thoughts now.


Electronic Arts is one of the best video game stocks to own this year going into the holidays.

  • Madden and NCAA are still selling well
  • SKATE displaced Tony Hawk as the best/most popular skateboarding video game
  • "Orange Box" is being heavily advertised; apparently, it's one of the best games of the year
  • Rock Band, a competitor to/improvement on Guitar Hero, goes on sale for christmas
  • Halo 3 has put more consoles in homes, Wii still selling well, PS3 price going to be cut
Sure, based on P/E, ERTS is richly valued, and as a value investor, that's always something to be cautious about. I don't think this is a buy-and-hold-forever situation, but I think EA is going to perform well through the christmas season. Stop back for a full writeup within a few days.

Secondly, oil prices are unbelievable.

I originally wrote about oil needing to correct when it was at 82 (and it did - I held CVX and then COP puts, and ended up not selling soon enough and approximately breaking even).
Now, after little significant news, it's at 90. It touched 90 during aftermarket/electronic trading just a few hours ago. Unless this passing of this psychological barrier encourages buying (which, at this point, I would not be surprised at), I think oil simply has to fall. The price of oil, as well as the price of oil stocks, SHOULD fall soon. Here are a few reasons why:
  • Chance of a production-disrupting hurricane now is slim to none
  • Driving season ending
  • Warm winter predicted
  • Refining margins evaporating.
Since $80, most professionals have been saying there is really no significant supply issues or current events to support this price. Just tonight, this article posted at states that 20 out of 29 professional analysts polled believe that oil will fall within the next week. The article asserts that futures demand (aka, demand by traders who do not actually buy oil) is increasing, while actual worldwide demand for physical oil really isn't.

So rationally, I think, we should see sub-$80 (maybe sub $70) oil this winter. Does that mean it WILL happen? No. As I stated, paper demand, not physical demand, is responsible for these current inflated prices.

As long as the dollar doesn't collapse, or there is no World War III, there is no reason for oil to remain at these current levels.

1 comment:

Student of the Stocks said...

I owned some puts and made 200+% in a week.

Now I've got some calls, as a play on Conoco's cyclical stock performance.

Now that oil has breached $90/barrel in actual US trading, I think it will move higher now. It shouldn't; I think it should be at $70. But I'm going to try to milk it for what I can...

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