There’s an old aphorism that Hollywood is recession-proof. Although the reality is a bit more nuanced, the argument makes sense. Movies provide escapism, allowing stressed families a relatively cheap form of entertainment.
Unfortunately, this trend doesn’t necessarily carry over into movie stocks.
On-demand streaming services have put a lot of options in front of the consumer that didn’t exist in prior generations. Also, movie theaters are beholden to the film studios, whose offerings can be a hit-or-miss affair.
Popular blog SlashFilm argues that 2015 was a historically bad year for Hollywood. Several big-budget films that were released during the first quarter of last year — including critically panned Jupiter Ascending and Mortdecai — tanked hard, losing $362 million.
In comparison, the big budget releases of 2014, which included duds like Pompeii and I, Frankenstein, lost a comparatively less $265 million.
Although it’s difficult to make a pure apples-to-apples comparison, movie stocks across the board had a rough year.
The pain was especially acute at the cinemas. Movie stocks tumbled as many films simply didn’t meet box office expectations. And while critics may point out that total movie releases in 2015 performed better than the year prior, this ignores the extraordinary impact of the Walt Disney Co. (NYSE:DIS).
DIS produced Star Wars: The Force Awakens. The intergalactic space saga accounted for 9% of ticket sales from the top 100 movies released in 2015. Without it, we could be looking at drastically different numbers.
Given the ensuing volatility, many Wall Street analysts were bracing themselves for another off-season in 2016. Few regarded cinemas as potentially profitable stocks to buy. However, Hollywood has pleasantly surprised them.
At the top of the list is the animated release Finding Dory, which has so far brought in nearly $430 million domestically. To put this into perspective, the biggest haul of 2014 was American Sniper, selling $350 million at theaters.
Rather than a flop, the film exhibition industry has been one of the better investments this year. Here are three movie stocks to buy for this summer’s blockbuster season!
Movie Stocks to Buy: AMC Entertainment Holdings Inc. (AMC)
Go hard or go home — that might as well be the new corporate slogan for AMC Entertainment Holdings Inc. (NYSE:AMC).
Earlier this week, Kansas-based AMC announced that it would acquire Odeon & UCI Cinemas Group, Europe’s biggest theater chain. The $1.2 billion deal would make AMC the world’s biggest player in the film exhibition industry. Upon the news release, AMC stock surged as Wall Street eagerly supported the company’s aggressive expansion.
A few months ago, in March, AMC fired a shot against rival movie stocks by agreeing to buy out Carmike Cinemas, Inc. (NASDAQ:CKEC). The deal — worth $1.1 billion and involves the assumption of Carmike’s debt — makes a lot of sense for both parties. Carmike cinemas do very well in rural areas and suburbs, whereas AMC specializes in big city fare.
Also, Carmike isn’t that profitable, raising concerns as a stand-alone investment.
Best of all, the moves have resonated strongly in the markets. Year-to-date, AMC stock is up nearly 28%. The jump in value is especially convincing since shares blew past key resistance levels earlier this year, and continue to seek higher ground.
It’s also a picture in contrast from the heavy losses between March 2015 and February 2016.
With its massive resources and aggressive strategy, AMC is simply one of the best movie stocks to buy.
Movie Stocks to Buy: Regal Entertainment Group (RGC)
In the wake of AMC’s takeover bids of key movie stocks, Regal Entertainment Group (NYSE:RGC) may look like the perennial bridesmaid. However, that wouldn’t be a fair comparison.
Prior to the Carmike bid, RGC held clear title as the king of American movie stocks, with 572 locations. The consolidation that is occurring within the exhibition industry isn’t just limited to one massive buyer. RGC itself had acquired Hollywood Theaters, increasing their footprint by 43 cinemas.
The significantly weaker balance sheet of RGC prevents it from going on a shopping spree ala AMC. However, Regal is able to extract more from their assets. Their free cash flow is considerably stronger than many other movie stocks. RGC has enviable gross margin, year in and year out.
Ultimately, the fundamentals are for naught if it doesn’t translate into market performance. Here, RGC stock acquits itself nicely. It’s having a solid run, up over 20% YTD. A significant portion of that momentum was driven in the past 30 days, where RGC has gained more than 13%. The surge has caught the eye of technical analysts as shares bypassed several gauges of price action strength.
RGC may have gotten dethroned as the top dog, but it still has plenty of pop.
Movie Stocks to Buy: Cinemark Holdings, Inc. (CNK)
Rounding out our list of movie stocks to buy is Cinemark Holdings, Inc. (NYSE:CNK). CNK is the third-largest movie theater chain in the U.S., a noteworthy statistic. Sadly, it has been overshadowed in the media due to the Aurora, Colorado, shooting that occurred in one of Cinemark’s theaters.
Awkwardly, CNK is drawing attention again, this time for countersuing victims after their failed attempt to legally hold Cinemark responsible for the tragedy.
Despite the public relations challenge for CNK, it shouldn’t detract from its financial strength. Among major movie stocks, CNK easily has the best profitability margins. From the top line to the bottom, the theater chain is making excellent use of its assets through tight cost controls.
CNK also has more stability on its balance sheet than many of its rivals, partially due to not engaging in shopping sprees.
Like other movie stocks, shares have cleared technical areas of resistance. Because of Cinemark’s superior margins, CNK is fundamentally a better value play than either AMC or RGC. This makes it a great alternative.
CNK may not be the biggest, but pound-for-pound, it packs quite the punch.
As of this writing, Josh Enomoto had a financial interest in AMC.