IT'S MORE IMPORTANT

than ever to pull your kids away from their video games and get them active in outdoor sports. The stakes are high there's a perfect storm of game releases coming this fall, and you don't want them hogging the Xbox.

Aside from the annual installments of Electronic Arts' "Madden NFL" and "NBA Live," Take Two Interactive's "Grand Theft Auto: San Andreas," Activision's "Doom 3" and Vivendi Universal's "Half-Life 2" are all scheduled to hit shelves between now and Christmas.

Which company should investors bet on right now? Those who are skittish about the overall market may want to take a look at a retailer poised to benefit from all these releases: GameStop, which turned up recently in our Foxhole safety screen.

One of the things our Foxhole screen looks at is beta, a measure of volatility. It's derived, for our purposes, by comparing a stock's volatility over the past three years with that of the Standard & Poor's 500. The index is assigned a beta of 1.0. A stock with a beta of, say, 0.8 has historically shown only 80% of the index's volatility. One with a beta of 2.0 has been twice as volatile. One with a negative beta has tended to move in the opposite direction of the index.

Beta on its own, though, isn't a safety measure. It says nothing about things like financial risk and growth prospects. So our search also calls for things like manageable debt, rising earnings estimates and price/earnings-to-growth, or PEG, ratios below 1.0. The idea is to search for stocks that can not only maintain their value in a down market, but that also look likely to climb based on their earnings growth projections. We featured Mine Safety Appliances, for example, in our last Foxhole screen on July 19 ("Mine, All Mine. Its shares have since gained 24%, compared with a fractional loss for the S&P 500.

Use our stock screener anytime to pull up your own list of safe-haven stocks. Our recipe is listed to the right. Recently the search produced 14 companies, including GameStop.

Based in Grapevine, Texas, GameStop operates 1,676 stores in 49 states about a third of them in malls and brought in sales over the past year of $1.7 billion. Roughly 42% of sales in its most recent quarter came from new video games, and another 23% from used games. Hardware like game consoles and video cards contributed 16% of sales, video game accessories like gamepads and joysticks brought in 14%, PC game software added 4% and PC accessories made up the remaining 1%.

Second-quarter results for GameStop, released Aug. 17, showed sales increasing 13% year-over-year to $345.6 million and profits improving by 17% to $7.7 million. Per-share profits of 13 cents matched analysts' expectations. Same-store sales declined 2.4% vs. the year-earlier quarter, but most of the drop, say analysts, came from manufacturer price cuts on lower-margin hardware like Microsoft's Xbox and Sony's Playstation 2. A shift in the sales mix to games from hardware during the quarter expanded the company's gross margin to 31.0% from 29.1%.

The 23% of total sales that used games contributed during the second quarter marked a sharp increase form the first quarter's 18% a trend that analysts say bodes well for the company's growth prospects. "One of the key aspects of our investment thesis for GameStop has been the fact that the company is the largest seller of used games, which are growing faster than new game sales and generate roughly double the gross margin," wrote C.L. King analyst William Armstrong in an Aug. 17 research note. "Used games provide GME with a major point of differentiation and competitive advantage vs. its big-box competitors, which neither buy nor sell games." (Armstrong doesn't own shares of GameStop; C.L. King doesn't have an investment-banking relationship with the company.)

Armstrong is among analysts who think Barnes & Noble, which owns 63% of GameStop's shares, should spin them off to its stockholders and focus on its core book business. As we noted in Monday's write-up of the bookseller ("Booking Strong Results, it will be able to do so tax free starting in October. Far from viewing GameStop as a second-class asset, though, Armstrong rates the stock a Strong Buy and notes that its return on operating assets (a measure of efficiency) of 25.6% "puts it in an elite group" with retailers Bed, Bath & Beyond, Best Buy and Abercrombie & Fitch.

But is GameStop safe? The stock carries a beta of 0.95 not terribly low compared with the S&P 500, but far less than electronics stores' average of 1.87. And stock research group Barra puts GameStop's Risk Factor a proprietary safety measure based on dozens of financial measures at 42, indicating that it's expected to be riskier than just 42% of the broader market.

The most important measure of a stock's safety, arguably, is its price relative to its prospects. GameStop trades at 13.8 times 2004 earnings projections, compared with an average of 18.9 for electronics retailers. And the company is projected to increase its earnings by 17% annually over the next five years, faster than the group's 14%. That gives the stock a PEG ratio of 0.81, below peers' 1.35 and the S&P 500's 1.53, and safely in bargain territory.