The “meme mania” that once propelled AMC Entertainment (NYSE:AMC) stock to lofty price levels has long left the scene. Even as a speculative trade, AMC is no longer one of the strong opportunities among entertainment stocks.
The better plays include other movie theater stocks. One of AMC’s key publicly traded peers sports a valuation more reflective of fundamentals, and is reporting strong results thanks to a post-covid box office recovery.
In addition, shares in content-focused entertainment companies look appealing from a risk/reward standpoint right now. Knocked down to low valuations, on concerns that “cord cutting” and the decline of linear television will outweigh streaming growth.
However, as they currently trade at “worst case scenario” prices, just the unveiling of “less bad” operating results may be enough to send them to higher prices. Some of these names could be takeover targets as well.
With this, let’s dive into these seven better buys among entertainment stocks.
AMC Networks (AMCX)
Forget about AMC Entertainment. There’s a much better AMC out there: AMC Networks (NASDAQ:AMCX).
Shares in this media company, which owns cable networks like AMC and IFC, along with streaming platforms like AMC+ and Acorn TV, have declined by more than 75% over the past five years.
Investors have hammered shares over by worries about the uncertainty surrounding the company’s TV-to-streaming transition. However, based on the current valuation of AMCX stock, it may be worth it to make this long-shot wager.
Shares today trade for less than 2 times forward earnings. This comes despite forecasts calling for earnings to decline only slightly over the next two years.
Better yet, while AMC Networks did just report declining earnings for the preceding quarter, earnings handily beat sell-side expectations. AMCX rallied upon news of these “less bad” results, and could do so again, if this trend continues in the quarters ahead.
Cinemark (CNK)
Cinemark Holdings (NYSE:CNK) is a much better option among entertainment stocks to gain exposure to the box office recovery trend than AMC Entertainment.
AMC is set to once again report quarterly losses, but as hinted above, Cinemark is benefiting from this year’s box office rebound, with the company’s revenue now back above pre-pandemic levels.
This explains why AMC shares have declined by more than 70% year-to-date, but CNK stock is up by more than 83% during this same time frame. Yet even as CNK has already spiked on these developments, don’t think it’s too late to buy.
Shares today trade for only 11.1 times forward earnings. As one analyst (Benchmark’s Mike Hickey) recently argued, the company could keep experiencing post-pandemic growth, may soon reinstate its dividend, and yet the stock remains at a forward multiple below historic norms. All of this suggests more upside ahead for CNK.
Fox Corporation (FOX)
As you may know, Fox Corporation (NASDAQ:FOX) owns the Fox broadcasting network, a smattering of broadcast television stations, as well as cable networks like Fox News, Fox Business, and Fox Sports.
However, this legacy media company has interesting streaming asset: ad-supported streaming platform Tubi.
As seen in Fox’s latest quarterly results, the company overall is experiencing a lack of revenue growth and declining profitability.
However, thanks to the continued strong growth of Tubi, plus the prospect of increased political advertising demand in 2024, Fox may be well-positioned to report much stronger results a few quarters from now.
Trading for only 9.2 times forward earnings, better results could really give FOX stock a boost. Besides the potential for the stock to rise in tandem with increased profitability, stronger results may lead the market to re-rate shares to a higher forward multiple, making now perhaps an ideal time to buy.
Nexstar Media Group (NXST)
Nexstar Media Group (NASDAQ:NXST) is another of the entertainment stocks with its eggs mostly in the broadcast TV basket. Still, as InvestorPlace’s Samuel O’Brient pointed out last month, this local television broadcasting company also owns multi-channel media properties like The Hill and Newsnation.
Per O’Brient, these assets, plus Nexstar’s portfolio of stations, could benefit from the upcoming 2024 election season. NXST stock trades for 13.6 times forward earnings, but forecasts call for earnings to more than double next year, mainly due to the election cycle boost to ad demand.
Nexstar has also moved into the network end of the broadcast business. The current owner of the CW television network, Nexstar has been rumored to be interested in buying the ABC television network from Disney (NYSE:DIS). New acquisitions and/or other efforts like the rise of ATSC 3.0 (aka “Nextgen TV”) could help drive further earnings growth.
Paramount Global (PARA)
Media stocks have been hammered in recent years, but Paramount Global (NASDAQ:PARA) has been hard hit by the market’s pessimism about the future prospects of the media conglomerates that, in the pre-Netflix (NASDAQ:NFLX) era, appeared dominant and unsinkable.
But despite being firmly out of favor, and a bona fide value trap for bargain-hunting investors, now may be finally the time to place a bet on this company’s future. Sure, at first glance, PARA stock doesn’t look like a bargain. Shares in the company, which owns properties ranging from old media outlets like CBS and Paramount Pictures, to streaming platforms like Paramount+ and PlutoTV, trade for 23.4 times earnings.
However, with the company’s streaming gamble starting to pay off, PARA may be poised to meet/beat expectations of an earnings recovery next year. Don’t forget, too, that Paramount Global remains a top takeover target among entertainment stocks.
Warner Bros Discovery (WBD)
Like Paramount Global, Warner Bros Discovery (NASDAQ:WBD) is another of the media names fully out of favor among investors. Shares sank like a stone after the merger that created the company closed in 2022.
Yet despite its poor performance, for those considering getting in at current prices, it could be one of the top entertainment stocks to buy.
How so? Like with PARA, this company’s streaming gamble may be on the verge of paying off. At least, that’s the view of a Seeking Alpha commentator, who recently argued that the market is underestimating the upside potential with WBD stock, once Warner Bros Discovery’s streaming-focused turnaround is complete.
Although other factors, like the actor’s strike, not to mention sell side forecasts, cast some doubt on this thesis, if you do your homework, and come to the same contrarian conclusion, an investment in WBD today could really pay off.
Wildbrain (WLDBF)
After looking at six better-known names better than AMC, let’s look at Wildbrain (OTCMKTS:WLDBF), an under-the-radar play among entertainment stocks.
Based in Canada, Wildbrain owns a large library of children’s entertainment programs and intellectual property.
The company also owns a 41% stake in Peanuts Worldwide. Peanuts owns the rights to Charlie Brown, Snoopy, and all other intellectual property related to the Peanuts media franchise.
These assets produce steady cash flows. However, due to high overhead and debt service expenses, Wildbrain reports negative earnings.
Wildbrain’s assets could be maximized by a larger company, making it a takeover target. While somewhat speculative to buy WLDBF for this reason, a takeover of Wildbrain is much more likely than a resurgence in meme popularity for AMC stock.
On the date of publication, Thomas Niel did not hold (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.
