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Friday, October 31st, 2014


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Stock Spotlight: Mickey, Multimedia and Madden

My first foray into investing involved shares of stock of several blue chip companies that my father gifted to me when I graduated from college back in 1990. I still remember his advice clearly: “Don’t touch ‘em for 10 years!”

So, I held on and watched my nest egg grow before finally selling out in the late 1990s. Sorry, dad. I held on for only eight years — before I took profits!

But what my father didn’t realize at the time was that he created a monster, as those investments sparked a passion for the stock market that I parlayed into a career as a business reporter and now as an analyst. Funny, how things work out.

The moral of the story is that you’re never too young to invest and learn about the stock market. So, we’ve listed three companies below that appeal to young adults, along with pros and cons for investing in each.

Now, I won’t say that you shouldn’t touch ‘em for 10 years, but being a college student, you have the benefit of time to ride out the ups and downs of the stock market, which are the basics of buy and hold investing. Before buying any stock, always consult a professional to make sure the investment is appropriate for your goals, risk tolerance, and budget.

Walt Disney Co. (DIS)

Snapshot: Probably the best-known entertainment company in the world, with media holdings, film studios, theme parks and resorts, and consumer products.

Price: $23

Pros:

  • Theme park attendance has recovered nicely since the attacks of 9/11. Plus, its lofty park admission prices are a mousetrap for parents and teens!
  • Distribution rights owned by Disney for Pixar’s first 10 years of films including: “Finding Nemo,” “Monsters, Inc.” and “Toy Story.”
  • Company wisely divesting its least profitable units by selling the Anaheim Angels baseball team and shutting down its East Coast Animation studio.

Cons:

  • With pending divorce from Pixar, Disney will likely lose its distribution deal for Pixar’s movies past 2005 to a competitor such as 20th Century Fox or Warner Bros.
  • Weak lineup for Disney’s ABC television unit, which was severely hurt by the death of John Ritter, star of “Eight Simple Rules for Dating My Teenage Daughter.”
  • Homegrown movies — such as “Lilo and Stitch” and “Treasure Planet” — were flops at the box office, until “Pirates of the Caribbean” reversed the trend.

TiVo (TIVO)

Snapshot: Reinventing the way you watch television with its digital video recorders (DVRs), which record programming automatically without the hassles of videotape.

Price: $11

Pros:

  • Word-of-mouth popularity of the TiVo DVR is a smashing success.
  • Its patented DVR is revolutionary for the video industry, enabling TiVo owners to experience both digital video recording and the concept of “multimedia time warping” – being able to pause live broadcasts while simultaneously continuing to record them.
  • Company wisely makes customers pay either a monthly subscription fee or a one-time “lifetime” of the product subscription payment, which provides steady revenue streams on top of the actual sales of its video recorder.

Cons:

  • Ability of satellite television industry to offer a free DVR with the purchase of a satellite dish could put more pricing pressure on TiVo leading to a potential price war.
  • Founded in 1997, TiVo is still losing money – showing a loss of 55 cents a share last year. How long can the company continue to lose money before it must turn a profit?
  • TiVo’s shares are trading at 120 times the company’s book value – actual worth of the business if it was sold. Is the cost of a share too expensive or is the growth potential of the company a reason for the valuation?

Electronic Arts (ERTS)

Snapshot: Develops, markets, publishes and distributes some of the country’s most popular interactive software games.

Price: $44

Pros:

  • Making money hand over fist with estimated 2003 sales of $2.93 billion and a parade of top sellers including: “John Madden Football,” “Tiger Woods PGA Tour Golf” and “NASCAR Thunder.”
  • Immense popularity among teens and 20-somethings due partly to great advertising and marketing campaigns.
  • Upcoming release of Sony’s portable PlayStation 2 is a potential gold mine for EA’s video games.

Cons:

  • The market for these games can be fickle and could change focus as it grows older. After all, Atari and Coleco were once the “coolest” video game makers on Earth, before falling flat on their faces as their markets’ tastes matured.
  • Are licensing rights for sports marketing tie-ins getting too expensive to remain a viable product?
  • Will profit margins decline as the number of games on the market eventually grows to more supply than demand?

* Price quotes are from February 6, 2004.

Michael Abramowitz is Assistant Managing Editor for Dan Ascani’s Profits Without Borders investment service (www.profitswithoutborders.com). To avoid any conflict of interest, he does not personally own shares or receive compensation from any of the companies analyzed above.

© 2008, Young Money Media, LLC. All rights reserved.

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