In recent years, high inflation has reduced many American consumers’ purchasing power and caused them to look hard for bargains in various areas, including clothes and groceries. But generally, they’ve been willing to spend large amounts of money on experiences and entertainment. Many data points support the latter theory. For example, in 2023, a well-respected consulting firm, McKinsey, found that Americans’ outlays on “out-of-home entertainment,” travel and restaurants had climbed by 7%, 6% and 3% above inflation, respectively.
Meanwhile, the demand for airplane tickets among Americans has been setting new records in recent weeks, and the gaming wins of Last Vegas Strip casinos surged 3.7% in May versus the same period a year earlier to $742.5 million. With inflation slowing radically but unemployment remaining relatively low on a historical basis, the top-and-bottom line growth of many U.S. entertainment firms is likely to remain quite strong going forward. Here are three must-buy entertainment stocks for investors who want to exploit this trend.
MGM Resorts (MGM)
As noted, casino gaming wins on the Las Vegas Strip jumped 3.7% year-over-year in May. Since MGM (NYSE:MGM) owns multiple casinos on the Strip, it’s very well-positioned to benefit from the sector’s growth, making it one of the best entertainment stocks to buy.
Also boding well for MGM stock, on July 3, investment bank BTIG started coverage of the shares with a “buy” rating. The bank believes the shares are undervalued, while the company’s financial results can beat the Street’s average estimates, given the strength of its Las Vegas and China businesses. BTIG also believes MGM’s digital business will help the firm beat expectations. The bank placed a $52 price target on the shares.
Meanwhile, MGM is embarking on promising initiatives to allow online gamblers to bet on live games in its casino, and the company is attempting to start offering online betting in Brazil’s huge market.
Given MGM’s many strong, positive catalysts, the stock’s forward price-to-earnings ratio of 16.6 times is quite low.
Spotify (SPOT)
Audio entertainment powerhouse Spotify (NYSE:SPOT) reported strong first-quarter financial results on April 23. Its top line jumped 20% versus the same period a year earlier to $3.6 billion, and its paid subscriber base surged 14% year-over-year to 239 million. Moreover, its net cash flows from operating activities climbed to $211 million from $59 million in Q1 of 2023.
On July 11, investment bank Jefferies predicted that Spotify would benefit from price increases and bundling initiatives. The bank was confident that the firm could increase its revenue growth by at least 15% in the next three years. Jefferies placed a $385 price target on Spotify’s shares.
The company has a huge 31% share of the global music streaming market.
On average, analysts expect its earnings per share to advance to $5.11 this year and $7.40 in 2025, compared to a per-share loss of $2.14 in 2023.
Booking Holdings (BKNG)
Booking Holdings (NASDAQ:BKNG), the owner of Priceline, is getting big boosts from the strong U.S. travel trends I described in my introduction. And given falling inflation, interest rates and continued low unemployment, the company’s growth is likely to accelerate.
In Q1, Booking’s sales jumped 17% versus the same period a year earlier to $4.4 billion, while its gross travel bookings increased 10% year-over-year to $43.5 billion. Its net income, excluding certain items, soared a very impressive 61% YOY to $708 million.
On July 12, investment bank Benchmark upgraded its online travel agency giant rating to “buy” from “hold.” The bank expects the company to benefit from market share gains in North America, resiliency in Europe and stronger-than-expected growth in the Asia-Pacific region. Benchmark placed a $4,700 price target on BKNG stock.
Given its strong growth and outlook, Booking’s forward price-to-earnings ratio of 22.7 times is quite low.
In light of the company’s powerful, positive catalysts and relatively low valuation, it is certainly one of the best entertainment stocks to buy,
On the date of publication, Larry Ramer held a long position at MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
