Six Flags Entertainment Corp (SIX), Coach, Inc. (COH), Cinemark Holdings, Inc. (CNK): Top Three Consumer Discretionary Ideas

Buy-Hold-Sell

Cinemark Holdings, Inc. (NYSE:CNK) has been through a transitional year. The company has been integrating Rave Cinemas (acquired in late 2012), working on the sale of its Mexican assets and investing heavily in new technologies. Its investment case must be looked at from many perspectives. The company has:

(1) An international growth story. Cinemark Holdings, Inc. (NYSE:CNK) is on track to open 125 international screens in 2013, and 100 per year over the next few years.

(2) Numerous margin initiatives. Cinemark Holdings, Inc. (NYSE:CNK) leads its industry with 23% adjusted EBTIDA margins, but the company is ready to improve that figure helped by initiatives that include higher 3D penetration.

(3) The potential for cash-flow growth to accelerate next year. As capital expenditures normalize in 2014, going back to the $225-250 million range versus the $325-350 million expected for this year, free cash flow should improve from $74 million to $225 million in 2014.

All of the above taken into account, and given that the company has been ameliorating the performance in the mature US market, I think its a good time to buy Cinemark Holdings, Inc. (NYSE:CNK). The company trades at 7.5 times 2013 EV/EBITDA, 15 times P/E, and pays a 3% cash dividend yield. I would go long now only to sell it when capital expenditures (and free cash flow) goes back to more normal levels (+$200 million).

Bottom line

The companies mentioned above should largely benefit from a consumer-led US recovery. While both Six Flags Entertainment Corp (NYSE:SIX) and Cinemark Holdings, Inc. (NYSE:CNK) are companies that I would not hold in my long term portfolio, Coach, Inc. (NYSE:COH) is one company that is achieving long term sustainable growth. Hence, I do believe Coach, Inc. (NYSE:COH) deserves to be in any long term portfolio focused on luxury goods.

The article Top 3 Consumer Discretionary Ideas originally appeared on Fool.com and is written by Federico Zaldua.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Federico 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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