A Barron's interview with Buzz Zaino recently offered an intriguingly contrary perspective on the stock market. Zaino runs the Royce Opportunity Fund (RYPNX), which has racked up average annual gains of 18.2% over the past 10 years, and 15.6% over the past five years. It's a small-cap fund with no load; its recent top holdings included Scholastic (Nasdaq: SCHL), Gerber Scientific (NYSE: GRB), and Matrix Service (Nasdaq: MTRX).
Unusually, Zaino's spoke positively about industries widely viewed as moribund, such as movie theater chains. To me, that's like hearing that I should consider investing in typewriter companies.
It sure seems like the movie theater business isn't poised for great growth, given the rising success of Netflix (Nasdaq: NFLX) and Americans' increasing willingness to rent movies and watch them at home. Yet Zaino points out that these companies sport no inventory and strong cash flow. In addition, this summer's bumper crop of sequels are expected to drive many movie fans into theaters. Think Shrek the Third, Pirates of the Caribbean: At World's End, Ocean's Thirteen, and Spider-Man 3, among others. Indeed, Spider-Man 3 broke box-office records, pulling in $151.1 million domestically and $382 million worldwide in its first few days. According to an AP article, it drew "more people over opening weekend than any film ever has."
Zaino singled out three cinema chains he felt deserved a closer look: Cinemark (NYSE: CNK), Regal Entertainment Group (NYSE: RGC), and Carmike Cinemas (Nasdaq: CKEC). One upside of these firms is that they tend to pay sizable dividends. (Zaino also recommended looking at newspaper companies, again because of their strong cash flows.)
What to do
Go ahead and consider these seemingly unappetizing industries. They may not be growing briskly, but as long as they're generating a lot of cash, they may still have some worthwhile value to offer shareholders, especially in the form of dividends. Plain ol' boring industries can perform well, too, as railroads' strong recent performance demonstrates.
Meanwhile, if you're interested in finding other payers of hefty dividends, including some in more promising industries, take a free trial to our Motley Fool Income Investor newsletter. Its recommendations are beating the market by nearly seven percentage points on average, and a free 30-day trial will give you full access to all past issues, so that you can read about every recommendation in detail.
Longtime Fool contributor Selena Maranjian owns shares of Netflix. Netflix is a Stock Advisor recommendation. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools .
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