The global pandemic that began in 2020 triggered a number of long-term trends. Working from home, remote learning and the surprise return to growth for the global PC industry are a few examples. Lockdowns and then wariness over the risk of Covid-19 variants means recreational and business travel has been decimated. With stimulus checks coming to many people and vacations repeatedly put off, bank accounts have been growing at an historic rate. As of last October, it was estimated that American European consumers had socked away $2.7 trillion in savings. With that in mind, it’s time to look at entertainment stocks.
People are itching to get out of their homes and have fun. They have the money to do it. Omicron has put a damper on things, but there’s optimism that this wave will be the last major one in the pandemic. And then? Come spring and summer 2022, there’s an expectation that all the pent-up demand and padded bank accounts will result in a new “roaring 20s.”
You can take advantage of the rush to spend by adding these entertainment stocks to your portfolio:
- Choice Hotels International (NYSE:CHH)
- Live Nation Entertainment (NYSE:LYV)
- MGM Resorts International (NYSE:MGM)
- Six Flags Entertainment(NYSE:SIX)
- Thor Industries (NYSE:THO)
- Vista Outdoor (NYSE:VSTO)
- Winnebago Industries (NYSE:WGO)
Each of these companies is poised to reap the rewards when consumers start going out again and opening their wallets. Worried about the potential for risk? To help on that front, I’ve screened these stocks and each earns at least a “B” Total Grade in Portfolio Grader.
Entertainment Stocks: Choice Hotels (CHH)
Choice Hotels operates a wide range of hotel brands ranging from discount (EconoLodge) to upscale (Cambria). By its latest count, Choice Hotels franchises over 7,000 hotels across 40 countries and territories. Back in 2018 InvestorPlace feature writer James Brumley said that “this underappreciated hotel operator is clearly doing something right.”
If it was doing something right then, Choice Hotels only got better during the pandemic. Sure, the company had a tough year. In its full year 2020 earnings, Choice Hotels reported adjusted net income down 49% year-over-year. But the company continued to sign up new franchises (albeit at a slower rate), and it outperformed the industry significantly in RevPAR (revenue per available room). By April 2020, CHH stock had recovered from the market crash to pre-pandemic levels and was back in growth mode.
In its most recent quarter, Choice Hotels reported income up 53% compared to the same quarter in 2019, showing it is in full-on growth mode. CHH stock is now up 36% from its pre-pandemic heights. Imagine what the trajectory is going to look like when a “roaring 20s” vacation season kicks off, while business travel begins to recover.
At the time of publication, CHH stock earned an “A” grade in Portfolio Grader.
Live Nation (LYV)
One of the big victims of the pandemic was live entertainment. Many concerts have been repeatedly postponed and rescheduled due to Covid. Live music was just starting to make a comeback in 2021 when omicron put a wrench in the works.
Live Nation — which includes Ticketmaster — is the global leader when it comes to buying tickets to concerts and other live events like sports, theater, comedy tours, races and more. Last summer, as many countries began to open up thanks to vaccines, live concerts came roaring back. There was pent up demand from music fans and also pent up demand from artists, many of whom depend on touring revenue as their primary source of revenue.
Live Nation had this to say to investors last November: “The 2021 summer concerts season rebounded quickly, with 17 million fans attending our shows in the quarter, as the return to live reflected tremendous pent-up demand. Festivals were a large part of our return to live this summer, with many of our festivals selling out in record time and overall ticket sales for major festivals were up 10% versus 2019.”
With omicron wreaking havoc on shows through the winter and possibly into the spring, LYV stock has been stalled for weeks. However, the company reported in November that 2022’s show count was already up double digits compared to 2019. Add in shows that have been recently postponed and LYV is going to be one of the entertainment stocks that gets a big boost this year.
The current Portfolio Grader rating for LYV stock is “B.”
Entertainment Stocks: MGM Resorts (MGM)
MGM Resorts operates 30 destination properties across the world. These are hotels combined with entertainment. This means operations like the Bellagio Hotel and Casino in Las Vegas and Mandalay Bay, which is another Las Vegas resort hotel that also has a casino and a 12,000 seat entertainment complex.
This is just the sort of business that was decimated by the pandemic. Flights were grounded, and people were nervous about being in close proximity. Others chaffed against masking requirements. When the company reported its fiscal 2020 earnings, the impact of the pandemic was obvious. Revenue was down 60% year-over-year. After delivering diluted earnings-per-share of $3.88 in 2019, MGM swung to a $2.02 loss per share in 2020.
However, in 2021 MGM’s business began to recover as travel picked up and capacity restrictions were lifted. The company’s expansion into online sports betting is also paying off. Revenue for Q3 2021 was up 140% YoY. The company had strong liquidity with $9.8 billion available. MGM also embarked on a share repurchasing program in 2021, and by the third quarter that had reached $1 billion.
Over the past 12 months MGM stock has posted 36% growth. That’s despite a November pullback. Las Vegas is back under a mask mandate, but when we get through the omicron wave, look for MGM Resorts properties to fill up with consumers who are flush with cash and looking to roll the dice. Add in the company’s BetMGM online sports betting operation’s projected $1.3 billion in revenue for 2022 and MGM stock will be well-positioned to continue its growth momentum.
MGM stock is currently rated as a “B” in Portfolio Grader.
Six Flags (SIX)
Theme parks have been another notable pandemic victim. Crowded, with people screaming on rides and packed together in lineups, they are no place to be for those concerned about Covid-19. They are expensive to operate if attendance is low and during the worst of the pandemic many were closed down for extend periods. As a 2021 industry report noted, the results were “steep attendance declines” in 2020.
Six Flags operates 27 parks across the U.S., Canada and Mexico. The company knows all about declining attendance. In 2020, attendance at its parks was down 79% compared to 2019 levels. By the third quarter of 2021, attendance still had not recovered to pre-pandemic levels, although revenue nudged up compared to Q3 2019.
The theme park industry report projects good news for 2022, with an expected “real recovery.” SIX stock has been hit hard by the challenges of the past 2 years. Today it still remains below pre-pandemic levels and it’s over 40% off 2018 highs. This offers an opportunity for investors to add this entertainment stock to their portfolio at depressed prices before the expected 2022 recovery kicks in.
At the time this article was published, the Portfolio Grader rating for SIX stock was “B.”
Entertainment Stocks: Thor Industries (THO)
So far, this list of entertainment stocks has been focused on companies that saw their business hammered by the pandemic and that are due for a big rebound. Thor Industries did not have that problem. Quite the opposite. Thor Industries owns some of America’s most iconic RV brands, including Airstream.
With international travel out and a desperation to get outdoors after lockdowns in 2020, RV sales soared. In 2021, the demand for RVs continued. Last September, Thor Industries reported its fiscal 2021 full-year results and they set new records. Thor sold over 300,000 units and topped $12 billion in net sales. With promotions and discounts no longer needed to move units, profit margins increased.
What about 2022? Expect the hot market for RVs to continue. More people have experienced camping and they want to continue. Thor brands include family friendly trailers that are an affordable upgrade over a tent. Thor’s iconic aluminum Airstream trailers are an aspirational brand. They are loved by those with high incomes and by influencers. Thor says its dealers had 9% fewer units on their lots in 2021 than in 2020, and 44% fewer than in 2019. As of July 31, 2021 the company has a massive backlog of orders with nearly $17 billion in RVs on order.
Last May, THO stock hit a 3-year high, but ended up with modest 12% growth for 2021. As the company’s factories work on fulfilling that backlog and camping continues to grow in popularity, THO stock is set to post higher gains in 2022. The investment analysts polled by the Wall Street Journal have an average 12-month price target of $140.71 for shares, representing 40% upside.
THO stock currently earns a “B” Total Grade in Portfolio Grader.
Vista Outdoor (VSTO)
All things outdoors saw a huge surge in popularity as a result of the pandemic. NPD released a report on the June 2020 period for the U.S. (June is a critical month for outdoor equipment sales), and the numbers were astounding.
Bike sales were up 63% YoY. Paddle sport sales increased by 56%. Golf equipment sales were up 51%. Consumers spent 31% more on camping equipment and 22% more on binoculars. In addition, after years of decline, officials from most states reported a “moderate-to-massive spike in hunting.”
Vista Outdoor operates a portfolio of brands that were on the receiving end of this surge in consumer spending. Tasco binoculars, Bushnell golf accessories, Bell bike helmets, Copilot child bike carriers, Camp Chef grills, Remington ammunition and more.
Many people who took up new outdoor activities have stuck with them, continuing to buy equipment and supplies. In addition, there will be upgraders who bought entry-level gear to start with but are ready to move to quality products. VSTO stock is up 43% over the past 12 months and over 300% from pre-pandemic levels. With Americans’ newfound love of the outdoors — and Vista Outdoors’ wide coverage of outdoor activities — this momentum is on track to continue in 2022.
At the time of publication, VSTO stock was rated as an “A” in Portfolio Grader.
Entertainment Stocks: Winnebago (WGO)
Finally, a second RV maker is on my list of entertainment stocks that should be on your shortlist. I’ve already outlined the case for the surge in popularity of RVs. Winnebago is one of the classic brands. Its trailers and especially its motorized RVs are considered premium offerings. That’s a good place to be in when consumers have extra cash sitting in their savings accounts.
Winnebago’s move to buy boat-maker Chris-Craft in 2018 turned out to be prescient. The company also snapped up Barletta Boat Company in 2021. With a desire to move out of crowded cities for more space, plus the new-found ability to work remotely, Americans have been buying vacation properties and cottages at record rates. One of the first things any new property owner with water access buys is a boat.
The demand for RVs showing no sign of slowing down. At the end of October, Winnebago announced its full-year fiscal 2021 results. The company reported record revenue, up 54% YoY. Margins were up, discounts were down, and the company delivered adjusted earnings-per-diluted-share that were up 350% from the year before. The company’s market share also continued to creep up, in an indication that buyers were willing to spend more on RVs.
In 2021, WGO stock rewarded investors with 25% growth. Strong demand should keep that growth trend going, and it will be aided by the share buyback program Winnebago announced last October.
WGO stock is currently rated as a “B” in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in CHH, VSTO and WGO. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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