Daily Gains Letter

Short-Term Escapes for the Weary Could Hold Some Long-Term Surprises for Investors

By for Daily Gains Letter |

Short-Term Escapes for the Weary Could Hold Some Long-Term Surprises for InvestorsAn unexpectedly rosy jobs report on Friday helped propel the Dow Jones Industrial Average and S&P 500 to record highs. The Dow Jones crossed the 15,000 threshold, touching 15,009.59, while the S&P 500 hit 1,618.46.

The U.S. Department of Labor announced that a net 165,000 jobs were created in April, and hiring was much stronger in February and March than first estimated. Together, job creation and hiring helped bring the unemployment rate down to 7.5%, the lowest in four years. (Source: “The Employment Situation – April 2013,” Bureau of Labor Statistics web site, April 3, 2013.)

The upbeat jobs report is a reassuring sign that the U.S. jobs market is indeed improving, in spite of higher taxes and government spending cuts that took effect earlier this year—and in spite of the Federal Reserve dumping $85.0 billion into the economy each month.

Growing optimism in the world’s largest economy could be just what retail investors sitting on the sidelines have been looking for.

After years of bad news, including the U.S. housing collapse, 2008 financial crisis, high unemployment, economic troubles in the eurozone, geopolitical tensions in the Middle East, nuclear threats from Dennis Rodman’s friends in North Korea, and domestic terrorism, American investors need a little silver lining.

This could be good news for all the previously ignored economically sensitive stocks. One area that has been performing well over the last 12 months has been the entertainment industry. The perfect short-term escapes for economically and politically weary people, movie studios and concert halls have been performing well. It’s one of the few cyclical industries that’s been acting like a defensive play.

IMAX Corporation (NYSE/IMAX; TSX/IMX) makes and leases projection and sound systems for more than 660 giant-screen IMAX theaters in 52 countries. More than 500 of the IMAX theaters are located in commercial multiplex theaters; the rest are in museums and science centers.

In 2012, U.S. moviegoers bought a record $10.8 billion in movie tickets, the first increase in three years. And now 2013 could be a strong year for IMAX with Iron Man 3, Fast & Furious 6, The Great Gatsby, Oz the Great and Powerful, Oblivion, and a host of other movies slated for release this year.

Lions Gate Entertainment Corp. (NYSE/LGF) is a leading producer and distributor of films and TV shows. Led by The Hunger Games and The Twilight Saga, the company’s feature films generated more than $1.2 billion at the domestic box office and $2.5 billion worldwide in 2012. Lions Gate’s television business includes 28 shows on 20 different networks, including Mad Men, Weeds, Anger Management, and Nashville.

Lions Gate’s home entertainment business finished the 2012 calendar year with a 9.5% market share, placing it among the top-five studios. As a company, Lions Gate ranks number one in box office-to-DVD and box office-to-VOD (video-on-demand) conversions.

Live Nation Entertainment, Inc. (NYSE/LYV) is the world’s leading live entertainment and e-commerce company. In 2010, the company significantly expanded its ticketing services with the purchase of Ticketmaster Entertainment, Inc. for approximately $890 million.

Ticket sales were weak in 2010 and 2011, due in large part to the recession and high ticket prices. In 2012, the top-100 tours in North America grossed $2.5 billion in ticket sales, nearly equal to their peak three years ago. Taylor Swift, Rihanna, and Pink, three major young concert draws, were mostly absent from the North American circuit in 2012, but will return in 2013.

Since the U.S. economic rebound is not yet in full swing, now might be the perfect time to consider adding cyclical stocks to your diversified retirement portfolio. With Americans looking for an escape and movie tickets representing the cheapest ticket to a night out, entertainment stocks might hold some long-term surprises.

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