Technology stocks we love

Recession? What recession? Gamers don't seem to be curtailing their spending habits and that's helping software company Activision ring up big sales. The company's massively popular "Call of Duty" and "Guitar Hero" series of video games did exceptionally well over the holiday season and they are expected to sell well again this year too.

Analysts say Activision, along with other gaming companies, is prime for more growth because of the popularity of the most recent generation of video game consoles: Nintendo's Wii, the Sony PlayStation 3 and Microsoft's Xbox 360. Typically, the life cycle of a new game console is about five years long and 2008 will be just the second full year on the market for the Wii and PS3 and third for the Xbox 360.

But Activision has an extra advantage over competitors since games like "Guitar Hero" appeal to a wider base of players than traditional action hero games, analysts said. Plus, Activision is expected to complete a merger with Vivendi's gaming unit in the first half of this year. Vivendi Games is the owner of Blizzard, which makes the online game "World of Warcraft." The combination of Activision's console expertise and Blizzard's online success should make the deal a winner for gamers and investors, says Colin Sebastian, analyst for Lazard Capital Markets.

Other analysts, however, suggested that there are risks tied to the Vivendi merger and that the stock may be a bit overvalued due to the high hopes for the deal. Activision's stock is pricier than many of the others we looked at, trading at 25 times earnings estimates for the 2008 calendar year (its fiscal year ends in March). But analysts expect earnings to grow at a 20% annual clip, on average, over the next five years. So it's probably still a good bet for long-term investors.



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