These 4 Stocks Are "Future Proof"
Adem is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Blockbuster, Borders, Circuit City; it seems like every day technology is putting another household name out of business. While investing has always been about anticipating "what's next," today's investors have to be especially careful. For today's investors a rock solid company with a wonderful history can literally become worthless over the course of one short year.
But because of this technological disruption, I feel that some investors have become too trigger happy. There are some "old school" businesses that are holding up fairly well, and they should do well going forward.
These four businesses are "future proof," no matter what the cynics say.
Silver screen stocks
With technological advances, like bit torrent and the endless new ways to view movies, many investors have been worried that the cinema may go the way of Blockbuster video. But did you know that U.S. box office revenues have actually doubled ($10 billion vs. $5 billion) since 1995? In part growth is due to ticket price increases, but even the amount of actual ticket sales has also increased by over 15 billion per year. I find it surprising that this industry has seen any growth at all, if you've listened to some pundits you likely would be surprised too.
The industry has held up well but is still surrounded by negative sentiment and worry, because of technology, in my world we call that opportunity. One nice way to play the silver screen value is with Regal Entertainment (NYSE: RGC) and Cinemark (NYSE: CNK), two large theater holding companies. I think it's safe to say, when you look at this weekends record box office sales for Man of Steel, people are still loving the movie going experience. Those record sales can't happen without both Regal and Cinemark profiting.
The steadiness that these companies revenues offer allows them to pay outstanding dividend yields. Cinemark's dividend currently stands at 3% and Regal's dividend is a whopping 4.7%! Not bad for two companies that have had large price increases recently, and they both still trade cheaper than the market today--with forward P/E ratios under15.
Regal saw its earnings increase more than double last year, but if I had to choose just one going forward it'd be Cinemark. While Cinemark pays the lower dividend, its earnings have grown at 11% annually the past five years. I like Regal, but the slower growth combined with an increasing dividend does make it a slightly riskier play than Cinemark.
Speaking of risk if you want a high risk, high reward, play in this space you should consider DreamWorks (NASDAQ: DWA). DreamWorks had been all but left for dead by the market last year, but now there are some signs of life. I think one thing that's lead to Mr. Market's discounting of this business is a fundamental misunderstanding of how it works. DreamWorks isn't going to see the steady income that Regal and Cinemark enjoy, because it only makes money when it produces a hit. That's actually the good news if you're an investor.
DreamWorks stock is on a recent run as it recently reported a quarterly profit, and a beat of $0.04 per share, but the stock still trades at less than 50% of its price from two years ago. The primary reason for DreamWorks stock decline was a "hit" slump, and its recent rally was on the expectation that things were turning around. I think buying call options that don't expire for a while is a good, risk controlled, way to play this high reward swing. You can limit your downside and if the hits come, you may have a double. It can be stressful waiting for "hits" to take off, but at least you know what the catalysts definitely will be.
Last year DreamWorks lost $.43 per share but this year it is expected to earn a profit of $.84 per share, a tremendous turnaround. If that growth actually happens, and if the company grows each of the next two years as expected, a double could be in the works.
Above and beyond
It may seem like an odd transition, to go from movies to Bed Bath & Beyond (NASDAQ: BBBY), but I couldn't have this "old school" conversation without adding this company to the mix. In my opinion there's nothing lazier then to lump all brick and mortar retailers together as "Amazon bait," but that's exactly what analysts have done with their negative outlook for Bed, Bath & Beyond. It's also been terrible investment advice, Bed Bath & Beyond is up nearly 20 points this year.
The company is a beacon of hope for a new brick and mortar future. Retailers simply can't survive in the age of e-commerce unless they offer a unique experience, but that's exactly what the company does so well.
Have you ever been in the place? I've been hooked since my first visit. They have literally every gadget that a person they could ask for in their home, from space foam pillows, to rotating massage chairs, all in one place. Bed Bath & Beyond has always seemed to me like the place that Bruce Wayne would shop at, if he were real, and the numbers back it up.
Earnings have grown 16.8% annually since 2007 and revenues have grown nearly 10%, right through the Great Recession. The company trades at a forward P/E ratio of just 12, and now owns World Market (10% of sales), which I believe fits their "unique retail experience" strategy well. I like this company, especially at these valuations.
When movies and soda-making machines meet
The funny thing is, these businesses--movies and BBBY--actually have one very big thing in common. The same reason that BBBY has withstood Amazon is why the reason why Man of Steel is a box office hit. The movies, like Bed Bath & Beyond, offer unique experiences that can't be duplicated by cheaper or more convenient alternatives.
In short they're doing what "old school" businesses need to do to remain future proof, and they're doing it quite well.
Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and DreamWorks Animation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!