Spider-Man Can Save Your Portfolio -- If You Let Him

Last month, I argued that 3-D cinema systems supplier RealD (NYSE: RLD  ) had become a potential winner in the making. Concerns over the cost of subsidizing glasses had become overblown as a summer slate of live-action blockbusters looked to set records and pad profits.

Fast-forward three weeks. The stock is up about 20% and is still rallying on the strength of expectations for Sony's (NYSE: SNE  ) The Amazing Spider-Man, a digital feature that takes full advantage of RealD technology.

I'll get into the Spidey review in a minute. First, let's cover what's happened between my first prediction and now.

Taking a stand
As we Fools are encouraged to do, I took action after waxing bullish on RealD. First, I made an outperform CAPScall on the stock. Then, on May 30, I purchased call options with a $10 strike price expiring on Aug. 17 for $2.57 a share. At the time, RealD common was trading for about $11.61 a share.

My thesis for this options play: Buy some intrinsic value to protect against a substantial drop in price while allowing for upside if a great report and strong box-office numbers sent the stock skyrocketing toward analysts' approximate $17-per-share price target.

So far my options position is about even -- or up sharply if you look at the "ask" price, which is $4.40 per share as of this writing. The "ask" matters, because it's the price at which sellers agree to part with their positions.

A business busting off the screen
RealD crushed Wall Street targets for both revenue and earnings when it reported on May 31. And while license revenue fell year over year because of comparably poor box-office sales, an impressive performance from Lions Gate's (NYSE: LGF  ) The Hunger Games and strong early numbers from Walt Disney's (NYSE: DIS  ) billion-dollar hit, The Avengers, resulted in $570 million in box-office receipts on RealD-enabled screens through May 18 -- the first eight weeks of RealD's fiscal 2013 first quarter.

How does that compare with last year? RealD booked $724 million at the gate during the entire first quarter of fiscal 2012. Thus, with five weeks to go -- and only two weekends of gate results for The Avengers, one of the biggest 3-D hits of all time -- the company had already booked 79% of last year's tally. All signs point to huge gains in licensing revenue.

Cue the Spider-Man theme music...
And yet the recent rally in RealD shares is as much about anticipation as it is past performance. The stock jumped nearly 4% on above-average volume when U.K. newspaper The Guardian posted a positive review of The Amazing Spider-Man that made reference to the RealD experience. Reviewer Andrew Pulver writes (emphasis added):

In reengineering [Peter] Parker into the introspective, uncertain male more typical of his previous film, [Director Mike] Webb is aided by a terrific performance from Andrew Garfield, who brings a genial unflappability that allows him to negotiate the often-ludicrous demands of the superhero plotline. At the same time, Webb also shows an unarguable facility for the more traditional action elements of the story, and the 3-D certainly helps: he pulls off some properly nauseating shots as Parker dives off skyscrapers, rescues kids from falling, and the like.

Conclusion: RealD pays off when it's central to the filmmaking process, as it was here. Investors should benefit as a result.

Breaking bad rules
Think I'm right? Wrong? Either way, it pays off to study disruptions in the making, for the market tends to reward those who lead rebellions. These are the sorts of companies we look for in our Motley Fool Rule Breakers newsletter service. Want in? Check out a 30-day trial subscription. If that's not up your alley just yet, you can still check out a free special report detailing the next trillion-dollar revolution.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney and had a short-term call options position in RealD at the time of publication. Check out Tim's web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Walt Disney. The Motley Fool has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Walt Disney. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 20, 2012, at 3:45 PM, dvena wrote:

    Hi Tim - So tell me what you think of IMAX. They play in the same arena and there are several upcoming movies - The Dark Knight Rises, for one - that will be using IMAX cameras for a good chunk of the movie and will likely achieve similar results. But which to you think is the superior investment and why? - Danny

  • Report this Comment On June 21, 2012, at 6:07 PM, contrlkaos wrote:

    Just a note to the author, Hunger Games was not presented in 3D so RealD made ZERO revenue from that title.

    Also, I would be VERY concerned about the content in RealD's pipeline after Spiderman through 2014. The list is below, and outside of The Hobbit, Monsters University, and maybe Ice Age, I don't see any blockbusters that have been scheduled for 3D yet. Although that list may indeed change.

    Ice Age: Continental Drift - July 13, 2012

    Step Up 4 - July 27, 2012

    ParaNorman - August 17, 2012

    Dredd - September 21, 2012

    Hotel Transylvania - September 28, 2012

    Frankenweenie - October 5, 2012

    Wreck-It Ralph - November 2, 2012

    Life of Pi - November 21, 2012

    Rise of the Guardians - November 21, 2012

    The Hobbit: An Unexpected Journey - December 14, 2012

    Cirque Du Soleil Worlds Away - December 21, 2012

    The Great Gatsby - December 25, 2012

    Gravity - 2013

    The Texas Chainsaw Massacre 3D - January 4, 2013

    Hansel and Gretel: Witch Hunters - January 11, 2013

    47 Ronin - February 8, 2013

    Escape from Planet Earth - February 14, 2013

    Jack the Giant Killer - March 22, 2013

    The Croods - March 22, 2013

    G.I. Joe: Retaliation - March 29, 2013

    Pixels - May 17, 2013

    Monsters University - June 21, 2013

    Mr. Peabody & Sherman - November 8, 2013

    One Direction Concert Movie 3D - November 8, 2013

    Walking with Dinosaurs - December 20, 2013

    Stretch Armstrong - April 11, 2014

    How to Train Your Dragon 2 - June 20, 2014

  • Report this Comment On June 21, 2012, at 6:12 PM, contrlkaos wrote:

    Also, Christopher Nolan specifically blocked Warner Brother's request to have Dark Knight Rises filmed or presented in 3D because he felt it distracts the viewer from the actual story.

    RealD will see absolutely no revenue from what may be one of the top 3 highest grossing films of all time. That would be very concerning to me if I was a shareholder, because the buzz for DKR will start growing in the coming weeks, and as soon as an analyst or two brings this up... it will be time to batten down those $RLD hatches.

  • Report this Comment On June 22, 2012, at 1:23 PM, TMFMileHigh wrote:

    Hi Danny,

    >>So tell me what you think of IMAX.

    Done: http://www.fool.com/investing/general/2012/06/22/like-reald-...

    Let me know what you think.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

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