Home entertainment stocks have been resilient during the novel coronavirus. But, live entertainment names? Not so much. With lockdown provisions still active in U.S. population centers, this sector is not out of the woods just yet.
Add in the potential $15 billion in aid for live venues from the recent stimulus bill passed by Congress. Put it all together, and now may be the time to dive into major names in this space.
Sure, many live entertainment stocks have rebounded tremendously since March’s “coronavirus crash.” However, as 2021 unfolds, and in-person businesses like cinemas, amusement parks, sporting events, and arcades return to prior levels of demand, expect their respective share prices to continue surging back to pre-outbreak price levels.
That’s not to say live entertainment stocks won’t pull back from here. With so much positive news as of late, investors may have gotten ahead of themselves. Yet, consider any near-term dip prime time to buy.
Consider these four entertainment names top stocks to buy in January:
- Cinemark (NYSE:CNK)
- Cedar Fair LP (NYSE:FUN)
- Madison Square Garden Sports (NYSE:MSGS)
- Dave & Buster’s Entertainment (NASDAQ:PLAY)
Top Stocks to Buy in January: Cinemark (CNK)
Compared to other hard-industries, things look worse for cinema stocks. And not just because cinema attendance remains far below pre-pandemic levels. With AT&T’s (NYSE:T) Warner Brothers releasing their Christmas tent pole, Wonder Woman 1984, on HBO Max as well as in theaters, the “theatrical window” could be coming to an end.
But, despite this potential long-term threat to the industry, now may be time to buy theater stocks. Besides the aforementioned vaccine and stimulus catalysts (which benefit the industry-at-large), Cinemark specifically may be the strong cinema recovery play out there.
As I said back in October, the company has enough cash to ride out 2021 if current conditions continue. Compared to rivals like AMC Entertainment (NYSE:AMC) and privately-held Regal Cinemas, this cinema chain looks best positioned to thrive once the things go back into its favor. In fact, Cinemark may seize the opportunity, and take over locations if AMC goes under.
Granted, that’s not to say shares won’t head lower in the near-term. CNK stock may have bounced back too quickly, after vaccine news broke in November. But, any sort of pullback in January could produce a solid entry point.
Cedar Fair LP (FUN)
Amusement park play FUN stock has performed quite well after hitting rock-bottom back in March. Shares have more their tripled off their lows.
But, shares remain far below their pre-pandemic price levels (around $55 per share last January, versus around $38 per share today). Yet, if vaccine distribution finally puts an end to this crisis in the United States, Cedar Fair stock could recover further as we progress in 2021.
That being said, it’s no slam dunk. As this analyst discussed, with the company’s high debt burden, and its dependency on the crisis abating to get back to profitability, the potential for further gains in the near-term may be limited.
However, the company was quickly able to partially re-open in 2020. By the end of the amusement park season, attendance was back up to 40% of pre-Covid levels. We may not see attendance surge back to 100% next summer. But, further deterioration in its underlying business from here doesn’t seem likely.
In short, with Cedar Fair shares more like to continue trending higher towards $55 per share, rather than slide far below $38 per share, consider the odds to be in your favor with this high-risk/high potential return recovery play.
Madison Square Garden Sports (MSGS)
In recent years, the Madison Square Garden Company has split up into several publicly-traded companies.
The company’s regional sports networks were first spun-off as MSG Networks (NYSE:MSGN). Then, earlier this year, what was left of the company (sports teams, Madison Square Garden venue in New York City), split into two: Madison Square Garden Entertainment (NYSE:MSGE), which owns the venue, and Madison Square Garden Sports, which owns the sports teams (NBA’s New York Knicks, NHL’s New York Rangers).
Some have made the case that MSGE stock is a great value play. But, you can make the same argument for MSGS stock. Per estimates from Forbes, the New York Knicks are worth $4.6 billion, and the New York Rangers are worth $1.65 billion.
That gives us $6.25 billion, versus its current enterprise value is $5.33 billion. In short, shares appear undervalued compared to the underlying value of the company’s assets.
Yet, even now these team valuation estimates don’t mean much, as the company’s operations remain challenged by the “new normal.”
As InvestorPlace’s Joel Bagole discussed back in September, don’t expect things to recover until fans can return to the stands. But, with vaccine news increasing the odds of sports returning to the “old normal” in 2021, buying now (at around $178 per share), ahead of shares potentially bouncing back towards prior levels (over $300 per share) may be a great opportunity.
Top Stocks to Buy in January: Dave & Buster’s Entertainment (PLAY)
What’s the latest with the popular chain of arcades for all ages? With better than feared quarterly results, and vaccine news spurring interest in hard-hit entertainment names, PLAY stock has been trending higher since early November.
But, given Dave & Buster’s shares remain more than 40% below their 52-week highs, investors wanting to bet on a vaccine-driven rebound may still find opportunity here. With sales expected to surge to $934.3 million in the next fiscal year (versus $407.8 million this fiscal year), buying now means you are getting in while its recovery remains in the early stages.
However, keep in mind that, pre-outbreak, Dave & Buster’s was generating sales of around $1.35 billion. Given its high fixed costs, losses could continue into the coming year. As this commentator noted, the path to normalcy remains uncertain, which given the company’s highly-leveraged balance sheet may mean big downside risk for those buying today.
It may be best to wait for a post-holiday pullback before diving into this recovery play. But, its high risk notwithstanding, keep PLAY stock on your watch list for top stocks to buy in January.
On the date of publication, Thomas Niel held a long position in MSGN stock.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.