What’s the best way to invest in entertainment? I’ve found a couple of interesting choices that are great ways to play the rebound in discretionary spending. As the economy rebounds, employment should pick up, which means spending on entertainment will rise. Outlined below are some entertainment stocks that are sure to entertain your portfolio over the long term.
Thrillers
The company owns and operates a number of theme parks across the U.S. Theme parks should be one of the biggest benefactors of the rebounding economy. As the level of discretionary income grows, thanks to rising employment, so should Six Flags Entertainment Corp (NYSE:SIX)‘ stock.
I also like the company for a number of other reasons, including a “solid moat.” It takes between $300 million and $500 million to open a theme park, including the two years it takes to build it. As well, there are the zoning restrictions and limited real estate. All in all, Six Flags Entertainment Corp (NYSE:SIX) believes its replacement costs for its theme park portfolio is upwards of $6 billion.
Toward the end of last month, Six Flags Entertainment Corp (NYSE:SIX) posted 2Q EPS that showed a decline in both earnings and revenue, as well as missing analysts’ expectations. Earnings per share came in $0.47 per share, down from $0.64 in the same period last year; and below the consensus of $0.53. Even still, the company’s stock only saw a modest 1% pullback.
The other big news of late for the stock was the death of a woman at its amusement park in North Texas. The accident happened on the Texas Giant roller coaster — the tallest steel-hybrid roller coaster in the world. However, the stock saw little-to-no fallout from the accident.
Also, Six Flags Entertainment Corp (NYSE:SIX) trades at only 11 times earnings, compared to chief peer, Cedar Fair, which trades at 41 times. Oh, and did I forget to mention, the stock pays an impressive 4.8% dividend yield.
Video games
The U.S. video-game industry is dominated by the likes of Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts. What’s more is that this industry generates some $38 billion in revenue, eclipsing the movie-production industry by some $9 billion.
The big news of late for Activision Blizzard, Inc. (NASDAQ:ATVI) is its plan to acquire 429 million shares from majority shareholder Vivendi. Previous news was that Vivendi was pushing for a one-time dividend of around $3 billion dividend — not the case anymore. The big benefit for shareholders is that shares outstanding will be reduced to below 700 million.
Activision Blizzard, Inc. (NASDAQ:ATVI) posted 2Q EPS of $0.17 compared to $0.06 for the same period last year, on the back of a 37% rise in revenue year-over-year. The broader tailwinds for Activision include the upcoming release of the Xbox One and Play Station 4. Activision Blizzard, Inc. (NASDAQ:ATVI) also trades at only 17 times earnings, compared to top comp, Electronic Arts, which has a 75 times P/E.
Movies
Movies are another great way to kill some time. The movie-production industry is $29 billion. The industry leader is NBC Universal, which is now fully owned by Comcast. The number-two movie producer is newly spun-off Twenty-First Century Fox Inc (NASDAQ:FOX) . As mentioned, Fox is a solid investment with the best valuation, balance sheet and profitability among the major media companies. Twenty-First Century is trading at a mere 11.6 times earnings compared to the likes of Disney at 19.5 times and Comcast at 18 times.
Twenty-First Century’s latest movie to hit the theaters was “The Wolverine.” The movie was the top movie during its weekend release in the U.S., grossing $55 million in sales. The company also plans to produce “X-Men: Days of Future Past” next year.
In July, Deutsche Bank slapped a $36 price target on the company, nearly 15% upside from where it currently trades. Driving the price-target increase? Deutsche notes that Twenty-First Century has the “fastest growth prospects among the entertainment group…is trading at 9.3x CY14E EV/EBITDA and 17x P/E, or a 0.86x PEG ratio, cheapest in media (avg 1.11x).”
Thanks to the shedding of the publishing assets, which now trade as News Corp, the stock is expected to grow EPS at an annualized 12% over the next five years, according to analysts.
The company is also set to release its first quarterly results since the spin-off next week. Consensus is for EPS of $0.34. For 2Q 2012, the combined publishing and entertainment company posted a loss of $0.64 per share.
Moviegoer
The best way to enjoy Twenty-First Century’s great movies? By actually going to the movies. This $15-billion industry is dominated by the likes of Regal Entertainment Group (NYSE:RGC). Regal has the largest network of theaters in the U.S. The company has over 7,300 screens in 578 locations across 42 states.
The company gets around 70% of revenue from admissions and almost 30% from concessions. It has been improving its screens, having upgraded nearly 40% of its screens to 3D screens as of the end of 2012. The summer lineup is also encouraging for boosting full-year 2013 revenue; these include such moves as Hunger Games 2 and Hobbit 2.
Second-quarter EPS came in at $0.36 compared to. $0.25 for the same period last year, with overall attendance and average ticket price both up year-over-year. The theater operator also pays an impressive dividend yield at 4.4%.
Bottom line
I think entertainment will be a great way to profit in the long term. All the stocks above have a solid position in their respective industries, and are great plays on a rebounding economy. Who doesn’t love to go to theme parks, play video games and watch movies? I know I do.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard.
The article Entertaining Your Portfolio originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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