The Top 3 Hollywood Stocks Right Now

No more waiting till June for summer's cinematic tentpole thrill rides. Movie studios' annual box office high season begins on April 29 with Universal's Fast Five.

The film stars Paul Walker and Vin Diesel and is a continuation of the franchise built upon 2001's The Fast and the Furious, which cost just $38 million to produce yet took in more than $200 million in receipts worldwide, Box Office Mojo reports.

Fast Five co-star Dwayne Johnson likely benefits from a beefier production budget, no doubt spent to create the sort of tire-melting, spine-tingling action sequences that helped the previous entry in the series, 2009's Fast and Furious, take in $353 million worldwide. That's Hollywood for you. Create a formula that works and stick with it.

This year, studio executives are sticking with comic book heroes:

Film

Release Date

Studio

Fast Five

April 29

Universal Pictures

Thor

May 6

Marvel Studios

Priest

May 13

Sony Pictures

Pirates of the Caribbean: On Stranger Tides

May 20

Walt Disney Pictures

Kung-Fu Panda 2

May 26

DreamWorks Animation

X-Men: First Class

June 3

20th Century Fox

Super 8

June 10

Paramount Pictures

Green Lantern

June 17

Warner Bros.

Cars 2

June 24

Walt Disney Pictures

Transformers: Dark of the Moon

July 1

Paramount Pictures

Harry Potter and the Deathly Hallows, Part 2

July 15

Warner Bros.

Captain America: The First Avenger

July 22

Marvel Studios

Cowboys and Aliens

July 29

Universal Pictures

The Smurfs

July 29

Sony Pictures

Sources: The Internet Movie Database, Box Office Mojo.

Of this summer's 14 planned tentpole screenings, five are based directly on comics or graphic novels. Another is based on a beloved literary series (i.e., Harry Potter), another on a Hasbro (Nasdaq: HAS  ) toy line that starred in the comics for years (i.e., Transformers), and another is based on a popular ride at Walt Disney's (NYSE: DIS  ) various theme parks.

In other words, Hollywood executives believe preteen boys and geek dads who remember their comic-book-reading days will fight for space in line at the cinema this summer, ready to spend big to be entertained by their heroes.

Can the strategy work? I asked my 11-year-old son what he thought of five movies I'd consider taking him to see: Thor, the new Pirates film, X-Men: First Class, Captain America, and Green Lantern. He showed interest in all of them save for Pirates of the Caribbean, and in the process validated Disney's thesis for buying Marvel Studios.

But of them all, the movie my son most wants to see based on the available trailers is Green Lantern. He isn't the only one. More than 33,000 have weighed in at the film ratings site Rotten Tomatoes and 97% say they plan to see the film, which looks epic:

Under Warner's big top
Color me unsurprised. Not only did Ryan Reynolds' rendition of the emerald hero command big lines at last year's San Diego Comic-Con, but the studio that made the film, Time Warner's (NYSE: TWX  ) Warner Bros., has been on a roll recently. Four of the top 10 grossing films in Warner's history have screened during the past five years, and all four have been summer tentpole features:

Film

Release Date

Worldwide Gross

Inception July 16, 2010 $825.53 million
Harry Potter and the Half-Blood Prince July 15, 2009 $933.96 million
The Dark Knight July 18, 2008 $1,001.92 million
Harry Potter and the Order of the Phoenix July 11, 2007 $938.21 million

Source: Box Office Mojo.

To be fair, Disney also has a history of box office outperformance. Pixar Animation, in particular, has proven to be a hit machine, and its latest, Toy Story 3, took in more than $1 billion at the worldwide box office last year.

Viacom's Paramount Studios has also had its share of successes, and Kung Fu Panda 2 looks poised to continue the tradition that includes Titanic, the second-highest grossing film of all time after Avatar, screened by News Corp.'s (Nasdaq: NWS  ) 20th Century Fox. And yet it's Warner Bros., with its stable of household hero names, that has figured how to consistently transform fantasy into big summer box office reality.

Competitor and peer checkup

Metric

Time Warner

Walt Disney

Viacom

CAPS rating (out of 5) ** **** **
Gross margin 44.4% 18.6% 46.8%
5-year profit growth (3.25%) 5.80% 11.00%
5-year est. profit growth 14.26% 13.71% 14.19%
Return on capital 7.0% 8.7% Not available
Trailing P/E ratio 15.76 18.43 31.33

Source: Capital IQ. Data current as of April 10.

But you wouldn't know that to look at the stock. Despite all its properties and publishing synergies, Time Warner trades for less than Disney and Viacom. Analysts also expect the company to outperform its peers in terms of earnings growth, resulting in what I believe to be an attractive 0.91 PEG ratio. Mix in a healthy 2.70% dividend yield, and I see a stock that could be a hero for my portfolio. I'll be buying shares when disclosure rules permit.

Do you agree? Disagree? Let me know you would rate Time Warner using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up to date news on companies like Time Warner, or any of its competitors. To get up-to-date Time Warner news and analysis, add the company to your watchlist today:

Walt Disney, DreamWorks, and Hasbro are Motley Fool Stock Advisor selections. Hasbro is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Disney at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


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