GO
Loading...

Is the Game Back On for Electronic Arts?

Electronic Arts, a once-despised stock on Mad Money, is now a buy, Cramer said Monday. Wall Street so hates this company that he had to change his call.

Right now there are 14 “buys,” 13 “holds” and four “sells,” on Electronic Arts , which is rather negative during a bull market, and the stock trades a mere $2 above its 52-week low. But a key acquisition, in addition to a recovering retail sector and potentially stronger-than-expected holiday season, should lend a boost to the company. That makes ERTS just too cheap to ignore.

On Nov. 9, Electronic Arts, owner of iconic brands like Madden NFL, FIFA Soccer, The Sims and Spore, announced the purchase of Playfish, one of the leaders in the social-gaming space. Playfish, the industry’s number-two player, makes games that are played for free on sites like Facebook, and it serves over 60 million active users a month, a 96% increase just since June.

Cramer sees the acquisition as a perfect fit for Electronic Arts’ online subscription service POGO and its mobile division, which develops games for wireless devices. He called it the future of gaming, saying the trend could beat out expensive consoles like Sony’s PlayStation, Microsoft’s Xbox or Nintendo’s Wii.

Also, Cramer likes that ERTS has been cutting costs reducing its workforce. And the company is sitting on $1.6 billion in cash, or $6 a share in a $16 stock. Subtract that cash from the share price and ERTS is trading at just 9.8 times 2011 earnings. Given the long-term growth rate is 15%, Cramer said, this is one incredibly cheap stock.

Now that Electronic Arts has taken the necessary steps to turn itself around, Cramer see the potential for immense growth. But that doesn’t mean investors have to race in. He expects ERTS to take a hit from yearend tax-lossing selling, as its down 6% year-to-date and 30% since June. Therefore, it’s OK to wait until 2010, which is when the benefits of the Playfish deal should start to kick in.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

Symbol
Price
 
Change
%Change
MSFT
---
6758.T
---

Featured

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.