How to Invest in Hollywood’s Winners

Zacks Market Edge

Welcome to Episode #65 of the Zacks Market Edge Podcast. Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life. In this episode, Tracey is joined by Kevin Matras, Vice President at Zacks, Research Wizard guru and the editor of Zacks Option Trader portfolio service. 2016 saw record North American box office at $11.37 billion but profits for the movie studios were down 15%. The tent pole movie strategy worked for Disney (DIS) which had 7 of the top 15 grossing films of the year. According to a profile in Vanity Fair, Disney has as its strategy that it wants to make movies that people must see in the theaters. It wants to make “event” pictures. It’s not surprising, then, that it was the studio behind “Finding Dory” and “Rogue One”. Both had strong word-of-mouth momentum and the public wasn’t willing to wait to see them on cable or television at a later date. But even with its huge studio success, Disney is expected to grow earnings by just 4% this year. Warner Brothers, owned by Time Warner, also had a successful 2016 with big money making movies in “Batman v. Superman”, “Suicide Squad” and “Fantastic Beasts and Where to Find Them”. It has a huge slate for 2017 including “Wonder Woman”, “The Justice League” and “The Lego Batman” movie. The Challenge From the Small Screen But the movie industry is changing again. It now faces more competition than ever from the home viewer who is now able to get original content without getting off the couch. Americans actually go to the movie theater, on average, about 5 to 6 times a year. 1. Netflix (NFLX) spent $100 million producing “The Crown”, a series about the life of Queen Elizabeth, and it appears to have paid off. Analysts have 2017 earnings growth at 142%. It’s trading with a P/E of 133, however. But Kevin says there’s just some stocks where “P/E doesn’t matter.” 2. Amazon (AMZN) is another one that is cashing on original content. Amazon Studios produced award-winning “Manchester By the Sea” in 2016. You also get the cloud and its retail business, though. Amazon is another expensive stock, with a forward P/E of 86. 3. Lionsgate (LGF.A) merged with STARZ last year and now has access to its hit original series about time travel set mostly in Scotland “Outlander” and its 25 million subscriber base. In addition, it’s still making movies through its studio. It produced 2016 awards-favorite “La La Land.” Kevin also likes the combination of Comcast (CMCSA) and Universal Pictures. He likes Comcast’s business focus including its OnDemand segment. Universal will be releasing “A Dog’s Purpose” and “Pitch Perfect 3” this year. Should investors be getting into any of these stocks at this point? And if so, which ones are Tracey’s and Kevin’s favorites? What do they think about the movie business and its future? Amazon: https://www.zacks.com/stock/quote/AMZN?cid=cs-soundcloud-ft-pod Netflix: https://www.zacks.com/stock/quote/NFLX?cid=cs-soundcloud-ft-pod Disney: https://www.zacks.com/stock/quote/DIS?cid=cs-soundcloud-ft-pod Lions Gate: https://www.zacks.com/stock/quote/LGF.A?cid=cs-soundcloud-ft-pod Comcast: https://www.zacks.com/stock/quote/CMCSA?cid=cs-soundcloud-ft-pod Follow us on StockTwits: stocktwits.com/ZacksResearch Follow us on Twitter: twitter.com/ZacksResearch Like us on Facebook: www.facebook.com/ZacksInvestmentResearch