When looking at the best entertainment stocks to buy, investors are realizing that upcoming holiday season is unlikely to be the same as the previous years. Another wave of coronavirus infections would imply that consumers are more cautious. However, in the last two months, U.S. consumer confidence has improved and this will translate into higher consumer spending.
It’s unrealistic to expect sectors like travel and tourism to be in focus. At the same time, industries like e-commerce retail and entertainment will witness growth.
Even within the entertainment business, in-house entertainment providers can see higher growth traction as compared to others.
Let’s look at four entertainment stocks that are poised to benefit from the holiday season. I believe that these stocks can rally in the next two to three months. Furthermore, one of more of these names are worth holding in the long-term portfolio.
- Las Vegas Sands (NYSE:LVS)
- Penn National Gaming (NASDAQ:PENN)
- Activision Blizzard (NASDAQ:ATVI)
- Disney (NYSE:DIS)
Entertainment Stocks: Las Vegas Sands (LVS)
When Pfizer (NYSE:PFE) announced positive results from its Phase 3 Covid-19 vaccine trial, LVS stock surged by more than 10%. I believe that LVS stock is undervalued and with the holiday season, the stock can continue to trend higher.
The company’s gaming and non-gaming operations in Macao can trigger revenue growth in the fourth quarter of 2020. Travelers to Macao need a visa along with a negative Covid-19 test. With stringent norms, growth is likely.
With coronavirus cases surging in the United States, the holiday season is likely to be relatively subdued for Las Vegas. However, it was recently reported that the company is exploring a $6 billion sale of Vegas casinos. This is another potential upside trigger for the stock.
As of September, the company reported net debt-EBITDA of 10.7. A potential sale of Vegas casinos will help the company in deleveraging. Further, the company can focus on relatively high growth markets of Macao and Singapore.
Overall, LVS stock has remained resilient in the last year. Even with the pandemic headwind, the stock has declined by just 9% during this period. With the holiday season coupled with prospects of cash infusion (asset sale), the stock is likely to trend higher.
Penn National Gaming (PENN)
PENN stock is another pick in among entertainment stocks that can trend higher in the holiday season. The stock has seen bullish momentum in the last six months and has surged by 240%. I will not be surprised if the rally continues in the next few months.
One of the key reasons to like PENN stock is the company’s focus on omni-channel strategy. The company has made inroads in the business of iCasino, e-sports and live streaming sports content. This is in addition to the brick and mortar model.
Recently, five states passed sports betting and casino legislation. Evercore analyst Kevin Rippey believes that the “proposed legislation indicates a clear path to as many as 35% of Americans having access to online sports betting by the start of the 2021 NFL season.”
As more states pass the legislation in the coming quarters, it’s likely that PENN stock will keep trending higher. The addressable market is getting bigger and Penn National Gaming has ample financial flexibility to pursue aggressive growth. As of September, the company reported cash and equivalents of $2.5 billion.
Overall, with the holiday season, the company stands to benefit from online and offline gaming. In 2021, the focus will be on more states passing the legislation for online sports and betting. This will keep the momentum going for PENN stock.
Activision Blizzard (ATVI)
I believe that ATVI stock is also among the top entertainment stocks to consider for the holiday season. In the last six months, the stock has moved higher by just 2.7%. A break-out on the upside is likely.
The U.S. has multiple consecutive days of 100,000 confirmed coronavirus cases, with hospitalizations hitting a high point. The Pfizer vaccine news is positive. However, it’s unlikely that the vaccine will be delivered in the next two months. In such a scenario, consumers are likely to maintain social distancing. This will trigger demand for in-house entertainment.
In terms of financial performance, the company’s Q3 2020 GAAP revenue was ahead of guidance. With a strong performance coming from the company’s Call of Duty franchise, I would not be surprised if the company delivers another strong quarter.
Activision had 111 million monthly active users (MAU) for the last quarter. The holiday season is likely to drive growth in MAUs with the company having presence across PC, console and mobile.
The company’s mobile gaming has been a game changer. As an example, Call of Duty was downloaded 300 million times worldwide. It has been the highest grossing new game in the U.S. App Store since its launch last October. This momentum will sustain with the pandemic triggering the demand for home-based entertainment.
I would include DIS stock in my portfolio of entertainment stocks. The pandemic has impacted the company’s core business segment of parks, experiences and products. Growth in this segment is unlikely as the novel coronavirus cases surge.
However, the company’s direct-to-consumer segment is likely to be a growth driver. It’s also the reason to talk about DIS stock as the holiday season approaches. As of August 2020, Disney+ had reached 60 million subscribers. Further, with ESPN+ and Hulu, the total number of subscribers has reached 100 million.
In particular, if Disney+ can deliver quality content, I expect strong subscriber growth to sustain in the holiday season. If we look at the global growth for Netflix (NASDAQ:NFLX), it’s likely that Disney+ can be a revenue and cash flow driver for DIS stock in the next few years.
It’s also too early to write off the company’s parks, experiences and products business segment. If Pfizer, AstraZeneca (NASDAQ:AZN) and Moderna (NASDAQ:MRNA) are able to deliver a vaccine in 2021, the segment will see a strong turnaround.
Therefore, it makes sense to remain invested in DIS stock, which has moved higher by just 3% in the last one year.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.