- Paramount Global: The company is a very attractive acquisition target
- Nexstar Media Group: Tons of free cash flow
- Electronic Arts: Some of the best games in the business
- BiliBili: It is one of China’s best stocks currently down on its luck
- Skillz: It has got a shot to turn things around
- Sea Ltd.: Financial services and e-commerce will drive Sea in 2022
- Live Nation Entertainment: Concert goers are coming back in droves
- Marriott International: Marriott’s business is stronger than it has ever been
- McDonald’s: The Golden Arches continues to perform at a high level
- Walt Disney: The PEG ratio is at a decade-long low
Investors looking for entertainment stocks to buy are in for a lengthy and protracted search. That is because everyone’s definition of what constitutes entertainment is different.
For example, if you like to go hunting on the weekend, gun manufacturers could be in your field of vision. However, while you might consider hunting entertainment, others might disagree. You say to-mate-o, I say to-mat-o. Different strokes for different folks.
Deal Capital Partners LLC estimates that the media and entertainment industry in the U.S. in 2021 was an $804 billion market. That constitutes films, video games, music, and book publishing. Of course, as I said earlier, everyone’s definition of entertainment is different.
To help make heads or tales of this search, I’ll find several ETFs with the word “entertainment” in the fund name to help me unearth the top 20 entertainment stocks to buy for 2022 and beyond.
The stocks that qualify should have a minimum market capitalization of $1 billion and be in the ETF’s top 10. Here are my top 10 entertainment stocks to buy for 2022:
|NXST||Nexstar Media Group||$187.14|
|LYV||Live Nation Entertainment||$116.36|
Entertainment Stocks to Buy: Paramount Global (PARA)
Paramount Global (NASDAQ:PARA) is the first of three picks from the iShares Evolved U.S. Media and Entertainment ETF (BATS:IEME), an actively managed ETF that invests in U.S. companies with exposure to the media and entertainment industry.
The media company’s stock has been on fire since mid-February. That is when CBS/Viacom rebranded as Paramount Global.
The company rebranded to recognize the big contribution its Paramount+ streaming service is expected to make to the company’s top and bottom lines. It also reflects on its iconic movie-making past. Equally important, it puts all the warring between CBS and Viacom behind it.
Shares continue to move higher heading into April as speculation mounts that Paramount is open to a buyout. Names like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have been mentioned as possible buyers.
Paramount+ is on a roll. In fourth quarter (Q4) 2021, it added 9.4 million subscribers, finishing the year with over 56 million subscribers and 84% year-over-year growth in streaming subscription revenue.
Nexstar Media Group (NXST)
InvestorPlace’s Faizan Farooque named Nexstar Media Group (NASDAQ:NXST) one of the best cheap stocks to buy in mid-January. It is up 26% year-to-date (YTD), which is pretty good considering the markets are down on the year.
As my colleague said, Nexstar owns television stations. Lots of them. It owns 200 broadcast stations in 116 U.S. markets, but controls more than 50% of the local broadcast media in the U.S.
In its March 2022 investor presentation, it points out that it is nearing $5 billion in annual revenue and $1.4 billion in free cash flow (FCF) generation. In the 12 months ended Dec. 31, 2021, it allocated 43% of its $1.24 billion in FCF to share repurchases, followed by 23% debt repayment, 11% acquisitions, 10% to dividends, and 15% on growing the business.
One thing that I did not know about the company: It owns 31% of the Food Network.
Interestingly, its NewsNation national news network is available in more American households than MSNBC. Take that, Morning Joe.
By most financial metrics, Nexstar is cheaper than it has been in recent years. And it has got a plan to grow.
Entertainment Stocks to Buy: Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) is the final of three stocks from the iShares ETF. The video game company isn’t having a great year in the markets — it is down 3.5% YTD — but its business is doing just fine.
In Q3 2022, its net bookings for the trailing 12 months were $7.25 billion, 22% higher than a year earlier. In the first nine months of fiscal 2022, more than 180 million monthly active accounts played EA games across all of its platforms. Most of its growth comes from its live services thanks to players spending 20% more time in 2022 on its games.
For all of 2022, it expects to generate $694 million in net income from $6.92 billion in revenue and $7.52 billion in net bookings.
I’m a sports fan, so I naturally lean toward Electronic Arts’ sports titles such as NHL 22 and Madden 22.
Recently, Chief Executive Officer Andrew Wilson suggested that it is considering dumping its relationship with FIFA, the governing body for soccer worldwide. The Verge reported on this development in February, stating:
“Wilson suggested that EA feels its FIFA branding deal is unnecessarily restrictive, while not providing enough value to the company. ‘Basically, what we get from FIFA in a non-World Cup year is the four letters on the front of the box.’”
EA doesn’t need FIFA to sell games. It is time to rip off the band-aid.
Bilibili (NASDAQ:BILI) is the first of three stocks from the top 10 holdings of the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA:NERD). NERD tracks the performance of the Roundhill BITKRAFT Esports Index.
Bilibili does a little of everything, although many call it China’s version of YouTube. InvestorPlace’s Shanthi Rexaline recently picked seven Chinese stocks that were obscenely cheap at the moment. Bilibili made the list.
While investors weren’t too happy about the company’s Q4 2021 results released on Mar. 3, they’re really not that bad.
The company’s revenue in the quarter grew 51% to $907.1 million while its monthly active users (MAUs) were 271.7 million, 35% higher than in Q4 2020. All of its financial metrics were up by 30% or more in the final quarter of 2021. The big negative was its $313.8 million operating loss. It was 121% higher than a year earlier.
Even though the stock is down 38.7% YTD, the analysts still like it. Of the 39 covering BILI stock, 31 rates it a Buy or Overweight.
Entertainment Stocks to Buy: Skillz (SKLZ)
Of all the names on this list, Skillz (NYSE:SKLZ) is the most beaten down of the bunch. As I write this, it is down more than 7% on the day and 59% YTD.
Despite the collapse in its share price, I’ve continued to argue on its behalf as its share price has fallen into the $2’s in March. I believe aggressive investors ought to be buying its stock under $3.
Here is a brief snippet of what I had to say about the state of its business:
“It finished Q4 2021 with 610,000 paying monthly active users (PMAUs), up 56% over Q4 2020 and 510,000 in Q3 2021, 19.6% higher on a sequential basis. If it continues to grow PMAUs by 20% each quarter, it will get to a million PMAUs by September.”
The problem isn’t that it is not attracting PMAUs; it is that they’re not spending enough. It is a problem that has got to be solved if its shares are to move higher.
I think the risk-to-reward proposition under $3 tilts in the aggressive investor’s favor. If you’re risk-averse, you have no business buying SKLZ.
Sea Ltd. (SE)
JPMorgan (NYSE:JPM) analysts downgraded the global consumer internet company’s shares in early March from Overweight to Neutral. However, it was the price cut that really hurt. The analysts cut it by 58% to $105. That is below where it is currently trading.
Sea Ltd. (NYSE:SE) operates three core businesses: Garena (online games), Shopee (e-commerce), and SeaMoney (financial services). All three are big players in Asia. The entire business saw revenues increase 127.5% in 2021 to $10 billion.
Unfortunately, it lost $593.6 million in 2021, 455% higher than a year earlier. Of the three businesses, only its digital entertainment unit is generating positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
Investors are losing interest in companies that aren’t profitable.
In 2022, its digital entertainment business will take a step back as Covid-19 recedes, while its e-commercial and financial services units are expected to experience major growth throughout the year.
There is no question that SE stock carries lots of risk. No risk, no reward.
Entertainment Stocks to Buy: Live Nation Entertainment (LYV)
The first of four picks from the Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ) is Live Nation Entertainment (NYSE:LYV). I couldn’t help but pick Live Nation for this list. The word entertainment is right in its corporate name.
Besides, Live Nation ought to experience a rebirth once Covid-19 slows. It operates concert venues, manages the artists that perform at these facilities, and sells tickets to the artist’s concerts. It is a trifecta of post-Covid growth.
Perhaps that is why its stock is up almost 39% over the past year. Investors sense that its business is about to get a whole lot stronger.
Live Nation reported full-year 2021 earnings at the end of February. Its revenues were $6.27 billion, a three-fold increase from 2020. That is the glass-half-full view. The glass-half-empty view is that it was half of 2019’s revenue.
As the company stated in its Q4 2021 press release, through the first two months of 2022, it had already sold 45 million concert tickets for shows this year with ticket sales at most major venues up double digits YTD.
Most importantly, its FCF in 2021 was negative $113.9 million. That is about one-tenth what it was in 2020, which was negative $1.27 billion. Investors should expect the turnaround to continue in 2022.
Marriott International (MAR)
Marriott International (NASDAQ:MAR) opened its 8,000th hotel in early March at its new head office complex in Bethesda, Maryland. The Marriott Bethesda Downtown at Marriott headquarters has 245 rooms and 12 floors with floor-to-ceiling windows providing views of the Potomac River.
In 2021, the company added a record 86,000 rooms, growing net rooms by 3.9%. It finished 2021 with 1.48 million rooms in 139 countries and territories. It signed deals in 2021 for 92,000 rooms, bringing its pipeline to 485,000.
Luxury hotels, which generate high fees for the company, have a pipeline of 50,000 rooms. Its luxury brands include JW Marriott, The Ritz-Carlton, W Hotels, St. Regis, and The Luxury Collection.
Its operating income in 2021 was $1.75 billion, just $50 million less than in 2020 on almost $1 billion less in net fee revenues. Marriott’s business has rarely been stronger than it is today.
Entertainment Stocks to Buy: McDonald’s (MCD)
McDonald’s (NYSE:MCD) has always been a tough company to figure out. By that, I mean that you would think the largest restaurant chain on the planet would move more quickly at launching new products. Take the McPlant, for example.
The Golden Arches is currently testing the meatless burger at 600 U.S. restaurants. This is after testing the product on a smaller sample of restaurants in 2021. Unfortunately, McDonald’s franchisees haven’t been impressed by McPlant’s ability to woo customers. As a result, franchisees might not support a national rollout. Instead, McDonald’s might launch the McPlant burger in urban markets where plant-based foods experience higher demand.
By taking its time to test and roll out products over a longer period of time, it is able to make sure the franchisees are fully onside. This is a must for a business where 95% of the locations are franchised.
In 2021, the company’s systemwide sales went over $112 billion worldwide. Its U.S. same-store sales increased by 13.8% this past year, its highest on record. It has now had seven consecutive years of same-store sales growth.
Business is very good at the Golden Arches.
Walt Disney (DIS)
The last of four picks from PEJ, Walt Disney (NYSE:DIS) is expected to have a strong year in 2022 for several reasons. However, it seems investors haven’t gotten the memo. DIS stock is down 28% from its 52-week high of $191.67.
Morningstar.com’s analysis of Disney projects that the company’s streaming services — Disney+, Hulu, ESPN+, and Hotstar — will exceed 300 million, up from 120 million in December 2020. As for profits, Morningstar.com expects operating profits by fiscal 2024.
Like Live Nation, Disney’s parks and resorts will experience tremendous demand in 2022 and beyond as visitors flow to its theme parks to catch up on all they’ve missed out on while Covid-19 was raging.
One of the valuation metrics that suggest now is an excellent time to buy Disney stock is the price/earnings-to-growth (PEG) ratio. The PEG ratio is the current price-to-earnings (P/E) ratio divided by its five-year expected growth rate. Disney’s current PEG ratio is 1.09. It hasn’t been this low at any time over the past decade.
This makes Disney is a good long-term buy under $140.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.