Sony: A Breakout Year?

01/07/2005 12:00 am EST


Richard Rhodes

Founder, Rhodes Capital Management

Richard Rhodes offers an intriguing strategy that uses fundamental analysis to determine long-term trends, while applying technical analysis in selecting trading opportunities within those trends. He turns those skills to selecting his Top Pick for 2005, Sony.

"As we enter into the year 2005, our single best idea is Sony Corp. ADR (SNE NYSE). The acquisition of the massive MGM movie library will generate incremental cash flows given they are licensing this content through their distribution partners. Moreover, given the depth and breadth of the library, there are cross-marketing synergies, such as new gaming products based on several of MGM’s popular titles.

"Meanwhile, the firm is expanding its leadership in videogame consoles. Sony sold more than 70 million PS2 consoles compared to Nintendo’s 15 million GameCubes and Microsoft’s 16 million Xboxes. And its next PS3 platform will have music, video, and Internet capabilities. This could make the box the ‘centerpiece’ of the family room, and drive further incremental sales.

"As with every turnaround play, challenges are always going to be present. However, for fiscal 2005, we expect Sony’s earnings to outperform 2004’s challenging year coming in between $1.45 and $1.55 a share vs. 2004’s $0.85. The current 2005 consensus is closer to $1.30. During 2004, the consumer electronics theme tended to take on a life of its own as witnessed by the near-parabolic move higher by Apple Computer. Now, moving forward, we consider Sony in the same vein. We think this is their ‘breakout year’, with 30%-40% gains well within our expectations."

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