Entertainment stocks are likely to outperform this year as consumers become more emboldened and relaxed. Here's more on three economic trends that support the trend and 11 stocks to consider, according to five money managers I check on the topic.
1. Consumer sentiment is rising. The University of Michigan Consumer Confidence Index added nearly 10 points to 79 in January. Sentiment rose on the back of improved expectations for inflation and income. Consumer sentiment has risen 29% since November. This is the largest two-month increase since 1991.
2. Jobs are abundant: Nonfarm payrolls rose by 353,000 jobs in January, and the previous two months' numbers were revised upward. Average hourly earnings increased by 4.5% compared to the previous year. January's job gains are even more impressive because payroll numbers typically shrink that month due to post-holiday layoffs, Bank of America says. The data confirms that there is no recession on the horizon. An abundance of jobs and rising wages make consumers more confident about leisure spending.
3. We are in the midst of a productivity boom: Productivity growth recorded a strong 3.2% in the fourth quarter of 2023, after gains of 4.9% and 3.5% in the previous two quarters. For perspective, growth has rarely exceeded 4% over the past 20 years. Productivity growth supports wage increases and reduces pressure on companies to raise prices. Both work to improve purchasing power. This prosperity also promotes economic growth. GDP growth is driven by a combination of labor force and productivity growth – both of which we have now.
Here are 11 entertainment stocks that will benefit from these trends:
Travel
When people feel more confident about their budgets, they hit the road. “It's a big deal,” says George Young, portfolio manager at Villere & Co. In New Orleans, there's still pent-up demand for post-Covid travel. This is one of the reasons why his portfolio owns the casino and hotel company Caesars Entertainment CZR,
The stock may also benefit from continued efforts to reduce high debt levels.
Matt Whitmer and Abby Roach at Allspring Global Investments favor Hilton Worldwide Holdings HLT,
As a play on leisure travel spending. It is also one of the major companies building hotels at a time when there is a shortage of rooms. Hilton accounts for one in every five rooms under construction, more than any other chain, Roach says. Meanwhile, independent operators continue to switch to the Hilton brand because it boosts business.
Next, think about airlines like Ryanair Holdings RYAAY,
in Europe. The continent is suffering from an economic recession, which is hurting air travel. But it actually helps Ryanair. Because its costs are lower and its balance sheet is stronger than rivals, Ryanair takes market share from struggling rivals in recessions, says Andrew Brown of Baillie Gifford, which specializes in finding companies that find ways to win throughout the economic cycle. The airline remains profitable even during this recession, and it is using profits to buy more landing slots at airports. The European economy may provide tailwinds this year as the central bank there eases monetary conditions, predicts Ed Yardeni, of Yardeni Research.
Also consider two behind-the-scenes names in travel. Brown at Baillie Gifford singled out Amadeus IT Group AMADY,
It provides software that manages reservation systems for airlines and hotels, and internal media systems in hospitality chains. At Villere & Co., Young owns Euronet Worldwide EEFT,
Which has more than 50,000 ATMs in Europe, the Middle East, Asia and the United States making it a travel game.
Computer and mobile games
Consumers are spending less on games, but are targeting their money on the most popular games. This is in favor of the large gaming software company that has achieved great success, namely Take-Two Interactive Software TTWO,
electronic Arts EA,
says Alec Bucanfuso of Gabelli Funds.
Both will soon be releasing updates of their biggest hits. Take-Two's Grand Theft Auto VI will likely be released in 2025. But it's not too early to get it in stock before that release. Grand Theft Auto hasn't been updated since 2013, so there's likely a lot of pent-up demand for the new version. Take-Two also has a big presence in mobile gaming, due to its purchase of Zynga. Electronic Arts is supposed to release an updated version of the Sports College Football series later this year. Now that college players are allowed to earn income from the use of their photos, the app will feature popular college stars, which is another draw.
The great outdoors
Like many retail chains that sell equipment used in outdoor activities like camping, Fishing and Hunting held major sales last year to get rid of excess inventory. They accomplished that task, and now they are ordering inventory again. “We're finally starting to see restocking,” says Bucanfuso of Gabelli Funds. “Retailers and manufacturers say the second half of this year will be better.” This would support growth in third-party supply manufacturers.
Bucanfuso prefers Vista Outdoor VSTO,
which sells its ammunition business to focus on products used in hiking, camping, cycling, golf and fishing. It owns some of the biggest brands including Bell, Fox Racing and Giro in helmets, CamelBak in hydration packs, Bushnell and Foresight Sports in golf, and Simms in fishing products. Another favorite is Johnson's Outdoor JOUT,
Which manufactures fishing products such as sonar, GPS systems and trolling motors. Among retailers that sell outdoor supplies, Bucanfuso singles out Sportsmans Warehouse Holdings SPWH,
Although the pandemic-era craze for outdoor activities has subsided, interest in space remains higher than pre-pandemic levels. Therefore, demand for outdoor products remains high.
Swimming pool supplies
For many people, entertainment means nothing more than relaxing around their backyard pool. When consumers spend more time by the pool, it will help them use the pool,
Wholesaler of swimming pool maintenance products. The company is also benefiting from two trends, says Whitmer of Allspring Global Investments. Many people are putting in swimming pools during the pandemic. There is a constant migration to the southeast, where people resort to swimming pools due to the warm weather.
Michael Brash is a MarketWatch columnist. At the time of publication, he owned a CZR. Brush suggested CZR and POOL in his stock newsletter, Brush Up on Stocks. Follow him on Xmbrushstocks.
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