The coronavirus outbreak has caused a lot of negative impact on consumer demand, unemployment and stocks in industries like travel and leisure took a big hit. During this pandemic, consumers changed their preferences and way of living in a way nobody would have imagined before.
Shares of Zoom (NASDAQ:ZM) performed very well during this pandemic. But entertainment stocks can not only provide a laugh, but can also provide news, joy and excitement. Much of which are needed today. But more to the point, entertainment stocks can provide well-adjusted returns as well.
The three companies to discuss based on their fundamentals are Fox Corporation (NASDAQ:FOX), AT&T (NYSE:T) and Comcast Corporation (NASDAQ:CMCSA). Ironically, Hollywood has produced two movies that mentioned the dangers of the pandemic in the past, “Contagion” in 2011 distributed by Warner Bros Pictures and “World War Z” in 2013 distributed by Paramount Pictures.
In the lockdown era, entertainment stocks were vital for our daily lives. As the coronavirus outbreak diminishes, these stocks can rebound from their business activities gradually getting back to full throttle:
All three stocks have a current price-earnings (P/E) ratio of less than the P/E ratio of S&P 500 index, making relatively undervalued and cheap compared to the broader stock market.
Entertainment Stocks to Buy: Fox Corporation (FOX)
FOX News Digital had the best performance for any May on record with a double-digit increase compared to the previous year in multiplatform views. FOX Business Network also experienced record growth in unique visitors.
On May 6, Fox’s quarterly earnings report for the quarter ended on March 31, 2020, showed an increase in revenues of $3.44 billion, an increase of 25% compared to the same period one year ago. The adjusted EBITDA reported was $920 million an increase of 20% compared to the $766 million reported last year.
There was an increase in revenues for cable network programming and television, but the effects of the pandemic sent the earnings per share much lower, at 13 cents per share compared to 85 cents per share during the first quarter of 2019.
The cancellation of many sporting events has declined advertising revenue, but as the social distancing measures get gradually restricted and major sports are expected to get back to normal, an improvement in profitability should be expected and earnings per share should rebound during the second half of 2020. Shares of FOX Corporation are down almost 20% so far in 2020.
Having a dividend yield of about 7% of AT&T stock is a dividend aristocrat in the S&P 500. The company is investing considerably in the development of 5G networks to gain data usage and deliver wireless profits.
In the valuation of stocks, one key element is the free cash flows and the company has a long history of positive cash flows, showing both predictability and growth. During the coronavirus lockdown, there was the release of HBO Max, with a library of shows and movies at the price tag of $15 per month. HBO Now witnessed an uptick of 40% during the pandemic.
AT&T CFO John Stephens mentioned “Quite frankly, on the HBO Max side, we’ve been pleased with where we’re at. But it’s been three weeks or not quite three weeks. And so, from that perspective, we’re — it’s early. We’re — well, I’m very about positive it, but it’s early.”
Competition is fierce in media streaming but the increase of growth in HBO Now is positive news for the future profitability of the company. The stock is down almost 23% on a year-to-date basis.
Entertainment Stocks: Comcast Corporation (CMCSA)
The coronavirus outbreak made Comcast close its Universal theme parks, the Olympics were postponed for 2021 and despite an increase in ads revenue for NBC, the channel most probably will have to renegotiate the deals.
This is not good news. However, Comcast’s cable and satellite business are expected to show an increase in revenue during the past two months with consumers staying at home. Peacock the new streaming service has satisfied the company with the first results.
NBCU CEO Jeff Shell said, “The early results are very, very encouraging, particularly the amount of time that each person is spending on the platform,”. At $4.99 per month for customers that are presently outside of its business footprint, the Peacock streaming service should be expected to steal customers from the competition boosting the profitability for Comcast.
Another positive factor for the stock is that the company plans to reduce its debt. Lower levels of outstanding debt are always better for any stock, reducing the economic risk. The stock has a year-to-date return of about -13%.
As of this writing, Stavros Georiadis did not hold a position in any of the aforementioned securities.