Movie theaters have had it tough over the past three years, without the ongoing writers’ strike in Hollywood putting its revenue engine in doubt. CNN Business reported Moody’s comments in early May, “New big-budget tent-pole releases tend to fill theaters. Theaters rely on these volumes for food and beverage sales as well, so exhibitors could feel the effects of a protracted strike more significantly.” This is a very tricky time to be considering the best movie stocks to buy.
So why would anyone in their right mind consider a movie stocks investment? Good question.
AMC Entertainment Holdings (NYSE:AMC) is up more than 18.07% year-to-date. Investors are betting that movie theaters will continue generating strong box offices come summer.
In 2022, the domestic box office was $7.37 billion, 64.4% higher than in 2021. Through June 5, it was $3.61 billion, or about $722 million per month. While that’s reasonable relative to 2021, it’s nowhere near 2018’s record box office that, averaged $991 million per month, 37% higher than in 2022.
Given AMC’s debt and the potential pain of a protracted strike, it would not be wise to bet on America’s largest theater chain. Instead, here are three ways to bet on promising movie industry stocks without too much risk.
Vanguard Communications Services ETF (VOX)
The Vanguard Communications Services ETF (NYSEARCA:VOX) has four movie theater chains amongst its 116 holdings: AMC at 0.31%, Cinemark Holdings (NYSE:CNK) at 0.23%, IMAX (NYSE:IMAX) at 0.12% and Marcus (NYSE:MCS) at 0.05%.
I realize this amounts to a minimal bet on movie stocks, but sometimes it’s better to be a little more conservative in your investments. That’s especially true when you’ve got something like a writer’s strike hanging over your head. Better to be safe than sorry.
However, If you go through the list of holdings, you will see that movie-related businesses account for three of the top 10: Walt Disney (NYSE:DIS) at 5.77%, Comcast (NASDAQ:CMCSA) at 4.42% and Netflix (NASDAQ:NFLX).
If you’re concerned about VOX’s performance, you needn’t be. YTD, it’s up more than 25%, more than double the index, and 22% over the past five years. It’s delivered reasonable, if not spectacular, returns over this period.
Amazon (AMZN)
These last two selections are indirect ways to bet on movie stocks.
Of course, Amazon (NASDAQ:AMZN) has its Prime video streaming service. However, it really got into the movie business when it acquired MGM Studios in March 2022, paying $8.45 billion for the iconic American movie studio.
It merged the studio with Prime Video and Amazon Studios to make a formidable movie business. Amazon Studio produced Air!, Ben Affleck’s latest directing effort, a movie about Nike (NYSE:NKE) signing Michael Jordan to a sponsorship deal.
By insulating yourself in the Amazon ecosystem, you are diversifying your interests beyond the movie business into its more lucrative industries such as data centers and cloud computing through Amazon Web Services, as well as the advertising business, which is growing faster than AWS.
The former had revenues of $21.4 billion in the first quarter, 16% higher than a year earlier, while the latter’s sales grew 21% to $9.5 billion. More importantly, the two segments have huge operating margins, allowing Amazon to do whatever it wants in e-commerce and elsewhere.
Don’t forget the goal of investing is to make money over the long haul. It’s a marathon rather than a sprint.
Berkshire Hathaway (BRK-A,BRK-B)
Even more indirect, Berkshire Hathaway’s (NYSE:BRK-A,NYSE:BRK-B) connection to the movie business is through its passive equity investments in Apple (NASDAQ:AAPL) and Paramount Global (NASDAQ:PARA). Berkshire’s 5.8% stake in Apple accounts for nearly 48% of the holding company’s $345 billion equities portfolio.
Apple launched Apple Studios in October 2019 to create content for its Apple TV+ video streaming business. Berkshire’s 15.3% stake in Paramount is a much smaller equity position, accounting for just 0.4% of its portfolio. It’s not even in its top 10.
Paramount recently cut its dividend to preserve free cash flow to grow its business. Its shares have been hit mercilessly, down 50% over the past year. Warren Buffett discussed the Paramount situation at Berkshire’s annual meeting in early May.
“The streaming business is extremely interesting to watch, because people love to use their eyeballs being entertained on a screen in front of them or a phone, whatever it may be, but there is a lot of companies doing it, and you need fewer companies or you need higher prices, or it doesn’t work,” The Hollywood Reporter reported Buffett’s comments.
I consider Paramount similar to Berkshire’s investment in Occidental Petroleum (NYSE:OXY). Investors thought Buffett had lost his touch for a long time because of the large energy investment. Higher oil prices have changed investor perception.
Occidental is now Berkshire’s sixth-largest holding, valued at $13.2 billion, giving it nearly 25% of the oil and gas producer.
Warren Buffett is patient capital. I suspect he ends up smelling like roses when it comes to Paramount.
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.
