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Pokemon Go fever: Six reasons why I like Nintendo stock

Source: Pokemon

Nintendo has hit a nerve in the game world and investors need to take notice.

The company's new virtual reality game, Pokemon Go, is screaming up the charts in app stores for both iPhone and Android users. Downloads and user engagement are setting records. We like what they are doing here after years of resting on their laurels.

Nintendo has created a game different than other games as it encourages environment interaction utilizing GPS to provide a differentiated product experience. This GPS-focused game uses iconic figures that a generation of gamers are familiar with. It's a brilliant combination of brand and new technology. Nintendo, despite the uncertainties regarding how they will monetize this asset, have developed a platform that can be leveraged into revenue. We applaud them and this news finally gives us reason to like this name. Here are six reasons why this name looks attractive:

1. Great branded characters and they are finally starting to mine this potential (think Disney or Marvel).

2. The game itself requires user engagement, which gives Nintendo great opportunities to leverage eyeballs pasted to Pokemon Go.

3. Nintendo has a chance here to increase revenues after a plunge in previous year's results.

4. The sentiment has been so bad on this stock that a bounce-back could very well continue after years of languishing stock value.

5. The stock's valuation is not unreasonable given other names in the market.

6. This is a new gaming platform and could rival Wii.

After a spate of bad news, Nintendo certainly needed a hit and it appears they have one. It goes to show you that iconic brands matter and, when coupled with new ways to deliver an entertainment experience, there are still plenty of buyers for innovation.

Nintendo is capturing engagement; that alone is a significant positive and step one toward revenue enhancement.

The reason the stock-market valuation of Nintendo has clicked up so considerably is that investors are betting that Nintendo will figure out a way to convert a free app into real revenue. There are plenty of game models out there that have chosen this path so it is not a new strategy. Some have been successful and some have not. This conversion from freeware to paid revenue is a tricky one but at least Nintendo has that opportunity; there are plenty of companies that would jump at the opportunity to have this type of engagement — even if the current revenue contribution from the product is nil.

A couple things to keep in mind for those who are bubbling with optimism that this is finally the turnaround that Nintendo has been waiting for: First, the yen is incredibly strong right now and that is a huge negative for Nintendo as a Japanese company. Next, it's important to recognize that Nintendo is a part owner of this franchise and that any revenue that is derived from this game must be split with its software partners. And finally, game players are notorious for being fickle and who's to say the current engagement level is sustainable. We shall see.

In a world of record-setting highs in the stock market, it's no wonder Nintendo is benefiting from the popularity of this new game. With future releases planned over the course of the next two years, it's entirely possible that a new franchise based on well-known characters will finally move Nintendo away from its lackluster results.


Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor. Follow DWM on Twitter @DestinationWM.

Disclosure: Michael Yoshikami does not own shares of Nintendo and has no investment-banking relationships with the company. But Destination Wealth Management may buy shares for clients.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.