Nintendo: A homerun in the fast growing video game industry

• Buy NTDOY.PK around 42.60

Nintendo (OTC: NTDOY.PK) manufactures hardware and software in the fast growing video game industry. Thus, the company makes the razors and the blades. More importantly, Nintendo is the only video game console maker with a profitable operation. On the game side, the company created such industry icons as Mario and Donkey Kong and launched franchises like The Legend of Zelda and Pokémon.

The video game industry has been growing gangbusters for the past decade. In fact, video game sales now rival sales of other major media including music, books, and movies. For those with a futurist bend, video games are sensory-rich experiential mediums evolving toward the inevitable virtual reality.

In addition to the exciting macro trend, Nintendo has recently taken center stage as a gorilla in the new console cycle. The Wii console offers revolutionary game play through controllers with sensitivity to full-scale motion. In English, this means Wii gamers swing the controller like a bat while playing baseball, or shadow box while boxing. This exciting development makes me believe the Wii is the new media killer app and will dethrone the iPod as the must have product of the times.

During the month of May, Nintendo continued it’s stronghold on the market holding down the two top spots for hardware sales with the Wii and handheld Nintendo DS, and lassoing four of the five top-selling game titles for the month. Also note that in Japan (a critical market for success) the Wii has outsold the PS3 fivefold and Microsoft’s Xbox 360 at a 2-1. One word comes to mind: domination.

The macro and micro story is firing on all cylinders, and a check under the hood reveals that Nintendo has the financials to support a solid long-term investment. The company had record operating profits of $1.91billion (FY ‘07), more than double FY ‘06. In addition, net income is up 77%.

I recommend nibbling on the stock whenever it pulls back. Keep your eye on Japanese interest rates because their rise will affect NTDOY, but not Nintendo’s super surging global growth.

Disclosure: SmartGuyDH is long NTDOY.PK