Entertainment stocks have been having a moment in the sun as improvements in technology make content more engaging and more accessible across the globe. While the shifting industry landscape can pose a challenge for large companies that need time to make major strategy shifts, it has also opened the door for others to innovate and take content creation to the next level.
However, not all entertainment stocks are created equal. Some are struggling to adjust to changing consumer behaviors (I’m talking about you, movie theater stocks) while others are driving those changes.
Here’s a look at three entertainment stocks to buy that look likely to deliver strong returns to shareholders over the next few years.
Entertainment Stocks to Buy: Netflix (NFLX)
You can’t talk about the entertainment industry without bringing up streaming service Netflix (NASDAQ:NFLX).
Historically NFLX stock has been an expensive play, but a worthwhile investment because the firm’s position at the top of the streaming space looked very solid. However, recently Netflix has seen a major pullback as investors started to worry about rising competition.
In just two months, NFLX stock has seen its share price fall nearly 20% after the company’s second-quarter results underwhelmed the market. To be sure, Netflix isn’t flying as high as it once was, but the firm’s commitment to creating quality content is likely to keep the service from succumbing to the increasing competition in the streaming space. Plus, although NFLX is nearing saturation in the U.S., the firm still has a huge growth opportunity in India, where its content has been well-received so far.
So, while the Q2 results were admittedly disappointing, this pullback in NFLX stock makes for a buying opportunity.
Entertainment Stocks to Buy: Walt Disney (DIS)
Unlike Netflix, Disney (NYSE:DIS) has been around for decades and while there are drawbacks to being around so long, there are a lot of benefits as well. DIS stock has been struggling to hold on to a rally over the past three years as investors worried about the impact of cord cutting on the House of Mouse, but things are likely to turn a corner for the firm during the second half of the year.
The firm is due to take control over the majority of Hulu, which should help the company build out its media arm and become a worthy opponent to Netflix. However, beyond its upcoming streaming service, Disney holds a huge amount of value in its Studios business. The firm has been releasing blockbuster after blockbuster for decades, and that translates into very valuable franchises that trickled down into theme park attractions and consumer products.
While the media segment has been under construction in recent quarters, Disney’s studio revenue was up 20% in the firm’s latest quarterly report.
Add to that the fact that the company has a healthy free cash flow and respectable dividend payments that are likely to continue increasing in the years to come, and you have a great long-term bet in the media space.
Entertainment Stocks to Buy: Activision Blizzard (ATVI)
The gaming industry is another space that investors should definitely consider when looking for entertainment stocks to buy and at the top of that list is Activision Blizzard (NASDAQ:ATVI). Game makers are benefitting from the shift away from 3rd party game retailers and toward subscription-based services that allow the developer to sell directly to customers.
Plus, gaming has become a spectator sport over the past few years which means that companies like ATVI are able to generate new revenue streams for everything from broadcast rights to merchandise and sponsorships. Activision’s franchises Overwatch and Call of Duty lend themselves league tournaments that are able to draw in millions of dollars and most analysts believe that’s just the beginning. As games become even more engaging with augmented reality aspects, gaming is likely to continue gaining momentum.
However what sets ATVI apart from its competitors is the firm’s potential growth runway in the mobile market. The firm has been working to roll out its most popular franchises as mobile games as well, which will help grow the firm’s potential market exponentially. In order to play games like Call of Duty traditionally, people have to own a game console. However, if the games are available to anyone with a mobile phone, you’re looking at a much larger potential customer base.
As of this writing, Laura Hoy was long NFLX.