Marvel vs. New Oriental Education: Marvel

In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!

Basketball is a different game than it used to be. More teams shoot the three-pointer. Fewer pass the ball with a set offense. And some, like Rick Pitino's now-eliminated Louisville Cardinals, don't mind a sloppy, turnover-filled game, so long as they're on the winning end.

But that's an immensely risky strategy, and it didn't work against Texas A&M. The Aggies' experienced guards were simply too much for the Cardinals and superstar freshman Edgar Sosa, who missed a desperate three-point attempt at the end of regulation.

Yes, China is a superstar ...
Which brings me to Bill's choice in this contest, New Oriental Education (NYSE: EDU  ) . There's no doubt that, like Sosa, New Oriental has game. It's a brand-name leader in the world's largest and arguably most important economy.

And Bill isn't stupid. He leads the Global Gains team and, in tandem with Tom Gardner, has made lots of money for Hidden Gems subscribers. I'm willing to give him the benefit of the doubt with this stock -- but only up to a point.

What's troubling about New Oriental is that, like Louisville, you really don't know what you're going to get. Will it be 45% year-over-year revenue growth, as was the case in fiscal 2005? Or will sales slow to the mid-20% range, as was the case in fiscal 2006?

It's worth asking. New Oriental currently charges stockholders $60 for every dollar of earnings that it produces. But don't expect much for that. Last year, New Oriental's normalized diluted per-share earnings fell more than 52%.

... But Mr. Fantastic is still fab
Conversely, analysts estimate that Marvel Entertainment (NYSE: MVL  ) will post $1.44 per stub in 2007 normalized earnings. If they're correct, that would more than double 2006's figure, giving the momentum in this match-up to Marvel.

Then there's Marvel's movie Ghost Rider, which is still in theaters and, according to Box Office Mojo, on the verge of breaking the $200 million barrier globally. That alone is impressive. But going by Marvel's math, this film would have already produced at least $20 million in operating income had it been self-financed, rather than distributed by Sony (NYSE: SNE  ) .

And Marvel's model gets really interesting with sequels. Have a look:

Film

Domestic box office

Blade

$70.1 mil

Blade 2

$82.3 mil

Blade: Trinity

$52.4 mil

Spider-Man

$403.7 mil

Spider-Man 2

$373.6 mil

X-Men

$157.3 mil

X-2: X-Men United

$214.9 mil

X-Men: The Last Stand

$234.4 mil

Source: Box Office Mojo

See the pattern? Sequels frequently outdo the original at the box office. I'm guessing we'll see that again when News Corp.'s (NYSE: NWS  ) 20th Century Fox releases Fantastic Four: Rise of the Silver Surfer in June. (For reference, the original FF film grossed $154.7 million domestically and $330.1 million worldwide.)

Here's my point. With the amount of data now available, valuing Marvel's shares isn't just a stick-your-finger-in-the-wind exercise, as it might be with New Oriental.

The last time I did the math, Marvel's stock appeared on track to merit at least $46 a share by the end of 2010 -- a 14% average annual gain from today's prices. I continue to stand by that estimate.

Scoreboard
In fact, with Ghost Rider doing as well as it has, I wonder if I may be lowballing it. If so, fine; I'd always rather be conservative and right than aggressive and wrong.

Therein lies the difference between New Oriental and Marvel in this contest. New Oriental may yet prove to be a great stock, but there's nowhere near enough evidence to say for sure. Marvel, on the other hand, is piling up successes as the stock moves sideways. That couldn't be better news for long-term investors, and it's why Marvel deserves your vote.

Convinced? If so, follow this link and rank Marvel "outperform" in Motley Fool CAPS. If not, vote it "underperform." Later this week, our editors will tally your votes to determine which stocks will advance one step closer to the title.

Read our opposing article on New Oriental Education, or see all of the entries in our tournament.

Fool contributor Tim Beyers, ranked 1,355 out of more than 24,700 in our Motley Fool CAPS investor-intelligence database, still owns more than 2,000 comics, but he didn't own shares in any of the stocks mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. Marvel is a Motley Fool Stock Advisor choice. New Oriental Education is a Global Gains choice. The Motley Fool's disclosure policy is a hero to your portfolio.


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