For Nintendo, It's Not Raining, It's Pouring Profits!

By: Money_and_Markets

Tony Sagami writes : I'm here in Japan with my two sons, and I'm reminded of something my mother used to say — Ame futte ji katamaru . Translated, it means "Rained-on-ground hardens." It was her way of saying adversity builds character.

In just the last few days, the country has had to deal with both a powerful earthquake in the northwest and a gale force typhoon hitting its eastern coast.

The latter, Typhoon Man-yi, was so strong that it forced the cancellation of 213 flights and completely halted southbound train service from Tokyo last weekend. My sons and I were supposed to be on one of those canceled trains, a southbound Shinkansen (bullet) from Tokyo.

End result: I had to cancel some of the most interesting parts of our trip. We were going to attend one of the six annual sumo tournaments in Nagoya … visit the temples of Kyoto … and celebrate Gion Matsui, one of the oldest festivals in all of Japan.

I also had to cancel my visit to the headquarters of Kyoto-based Nintendo. My Asia Stock Alert subscribers are sitting on a 55% open gain since I recommended the company's stock in January, so I was eager to see if sales trends were accelerating or slowing down.

Luckily, I'm still managing to get some great insight into the company. And that's what I want to tell you about today …

Nintendo's DS Game System Finds an Unlikely Ally — Teachers

When it comes to investing in Asian stocks, nothing beats boots-on-the-ground research. I say that because I am continually amazed by how much I learn just from being here.

I'm not just talking about my meetings with management and factory tours. I'm talking about anecdotal and accidental information I learn just from the regular, everyday people I meet and observe. For example, I almost fainted at the investment information I gleaned just from riding on the Tokyo subway system.

Japanese school children are very easy to recognize because of their mandatory school uniforms. And I saw hundreds of these youngsters playing Nintendo's portable DS (dual screen) gaming system. That didn't surprise me.

What did surprise me was what they were playing. Instead of Super Mario Brothers or Pokeman, most of the kids were playing educational games, such as Big Brain Academy, a new multiplayer game that allows friends and families to work on their knowledge, memories and powers of recognition.

Seemingly, Nintendo has figured out a way to make learning fun! As a father of four children, I can tell you that I'd much rather have my children playing educational games than the more mindless video games. A lot of Japanese parents must agree — Nintendo has sold 18 million DS units here.

In turn, software designers have flooded the Japanese market with a small army of reference guides, digital books, and study tools. In fact, out of the 500-odd DS software titles on the market, only about 200 are traditional videogames. The rest are educational.

But wait, it gets even more interesting …

It turns out that even some Japanese teachers have started using Nintendo's DS as an instructive tool. Yes, you read that right, they're using video games to teach!

Get this: The Kyoto school district now uses Nintendo DS machines in its four junior high schools, and it's seen spectacular results. Nearly 80% of its students were able to master an appropriate level of English vocabulary by using the DS, up sharply from just 18% before.

The teachers love the results, and they also love the device's Wi-Fi functionality. Children can electronically transfer their homework, assignments, and tests directly to the teachers. No more paperwork and no more "the-dog-ate-my-homework" excuses, either.

Here's the icing on the cake: A Nintendo DS costs less than $150, making it a much cheaper alternative to individual computers.

Now that I've learned how Japanese schools are using the DS — and watched the enthusiasm of students playing these educational games with my own eyes — I am more convinced than ever that Nintendo has a long, long ways yet to run.

If the rest of Japan follows Kyoto's lead, Nintendo's profits could increase by a factor of 10 and give my subscribers the opportunity to see their stock soar by leaps and bounds.

Don't Forget About The Wii, Either …

Before I arrived in Japan last week, my enthusiasm for Nintendo's stock was based upon the spectacular success of the company's Wii (pronounced "we") gaming console.

And let me tell you, the Wii is still selling like hot cakes. In May (the most recent figure available), the new Nintendo gaming console outsold Sony PlayStation 3 by a three-to-one margin in Japan and by more than two-to-one in North America. Nintendo sold 338,000 Wii players in the United States in May, compared with 81,600 PlayStation 3 units.

In fact, the Wii is selling so briskly that Nintendo recently surpassed Sony in terms of market capitalization. It is now one of the 10 most valuable Japanese companies. That's a remarkable accomplishment.

Here's another fascinating factoid I learned in Tokyo — some nursing homes in Japan are using Nintendo Wii games to keep seniors engaged in physical activity. If you've ever seen a Wii in action, you'll know exactly why.

I'm talking about the fact that the Wii's controller isn't the typical pad with an array of buttons. Instead, it looks more like a television remote control and can sense the user's physical motions.

In one game, you might swing the Wii's controller to move a tennis racket on the screen … in another, you might cast it just like a real fishing pole. This intuitive yet physical approach has opened up the Wii to a whole new group of gamers. The proof is in those sales figures.

Again, my Asia Stock Alert subscribers already own Nintendo. But based on what I've learned on this trip, I think this is just the beginning of a long uptrend for the company.

In a few hours, I'm going to Nagano's Shinshu University, which is known for producing some of Japan's best teachers. I'm going to talk to the students and professors at the education department to find out the likelihood of the Nintendo DS being adopted by school districts all over Japan. That will give me an even better idea of Nintendo's future prospects. So stay tuned!

Best wishes,

By Tony Sagami

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