Blockbuster, Borders, Circuit City; it seems like every day technology is putting another household name out of business. While investing has always been about anticipating “what’s next,” today’s investors have to be especially careful. For today’s investors a rock solid company with a wonderful history can literally become worthless over the course of one short year.
But because of this technological disruption, I feel that some investors have become too trigger happy. There are some “old school” businesses that are holding up fairly well, and they should do well going forward.
These four businesses are “future proof,” no matter what the cynics say.
Silver screen stocks
With technological advances, like bit torrent and the endless new ways to view movies, many investors have been worried that the cinema may go the way of Blockbuster video. But did you know that U.S. box office revenues have actually doubled ($10 billion vs. $5 billion) since 1995? In part growth is due to ticket price increases, but even the amount of actual ticket sales has also increased by over 15 billion per year. I find it surprising that this industry has seen any growth at all, if you’ve listened to some pundits you likely would be surprised too.
The industry has held up well but is still surrounded by negative sentiment and worry, because of technology, in my world we call that opportunity. One nice way to play the silver screen value is with Regal Entertainment Group (NYSE:RGC) and Cinemark Holdings, Inc. (NYSE:CNK), two large theater holding companies. I think it’s safe to say, when you look at this weekends record box office sales for Man of Steel, people are still loving the movie going experience. Those record sales can’t happen without both Regal and Cinemark profiting.
The steadiness that these companies revenues offer allows them to pay outstanding dividend yields. Cinemark’s dividend currently stands at 3% and Regal Entertainment Group (NYSE:RGC)’s dividend is a whopping 4.7%! Not bad for two companies that have had large price increases recently, and they both still trade cheaper than the market today–with forward P/E ratios under15.
Regal Entertainment Group (NYSE:RGC) saw its earnings increase more than double last year, but if I had to choose just one going forward it’d be Cinemark. While Cinemark pays the lower dividend, its earnings have grown at 11% annually the past five years. I like Regal, but the slower growth combined with an increasing dividend does make it a slightly riskier play than Cinemark.
Speaking of risk if you want a high risk, high reward, play in this space you should consider Dreamworks Animation Skg Inc (NASDAQ:DWA). DreamWorks had been all but left for dead by the market last year, but now there are some signs of life. I think one thing that’s lead to Mr. Market’s discounting of this business is a fundamental misunderstanding of how it works. DreamWorks isn’t going to see the steady income that Regal and Cinemark enjoy, because it only makes money when it produces a hit. That’s actually the good news if you’re an investor.
