Few large caps have performed as well as Disney (DIS +0.42%) over the past decade. The House of Mouse has appreciated more than 220% over that time frame, which blows past the 68% return of the S&P 500 in general.
So which stocks do we think can go on a Disney-like run over the next few years? We posed that question to a team of investors, and they picked Activision Blizzard (ATVI +0.00%), Cedar Fair (FUN +0.00%), and Celgene (CELG +0.00%).
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A digital-content powerhouse
Demitri Kalogeropoulos (Activision Blizzard): While Disney's pay-TV networks have been steadily losing subscribers, Activision Blizzard is setting new engagement records with each passing quarter. In fact, the video game developer reached fresh high-water marks for active users in both the Activision (50 million) and Blizzard (36 million) sides of the business in 2016.
The solid momentum continued into the new fiscal year, too. Revenue and profits both beat management's expectations in the first quarter, with help from the hugely popular new property Overwatch.
Even though it will remain a video game company at its core, Activision is starting to look like an entertainment giant -- and one that's built for the digital age. The 43 billion hours that users spent interacting with its content last year rivals Netflix's total. Activision's highly profitable digital sales, meanwhile, are responsible for almost two-thirds of the business today.
In addition to the ever-expanding digital selling channel, management is excited about the opportunities in professional gaming. Between its esports streaming events and the 400 million casual players it acquired by purchasing King Digital last year, Activision could easily find advertising revenue becoming a significant source of income for the business. Executives are also crafting a consumer-products division that could create additional monetization opportunities for their portfolio of intellectual property, which includes the iconic Call of Duty and World of Warcraft franchises.
This wide range of growth arenas suggests that Activision has many paths it could take to expand its reach over the next decade, so long as it continues to crank out highly engaging video game content.
Like Disney, but better
Rich Duprey (Cedar Fair): Amusement-park operator Cedar Fair offers the equivalent opportunity of Disney's entertainment portfolio without the drag of its media empire. That's borne out by Cedar Fair's stock performance. Over the past five years, both theme-park owners have seen shares rise by a similar percentage. Yet, over shorter periods of time, Cedar Fair has outperformed Disney, which is being held back by the likes of ABC, ESPN, and more.
Investors have good reason to expect Cedar Fair to be a winning investment going forward.
Cedar Fair operates 11 amusement parks and two water parks in North America, and has been benefiting from the uptick in leisure-time consumer spending. Not content to rest on its laurels, the theme-park operator is also upgrading its water parks in a bid to boost attendance, while adding a new indoor-sports complex at Cedar Point. The move should help drive off-season revenues during what would otherwise be a slow period. If it pans out as expected, investors could see the idea spread to the company's other properties.
Cedar Fair has also said its early-season indicators point to it having another record-setting year. Although the first quarter is its slowest period and it typically operates at a loss at that time of the year, it saw early strength in season-pass sales, food and beverage sales, and even group events.
What makes the company especially attractive to investors is that Cedar Fair is structured as a master limited partnership, which, like a real estate investment trust, requires it to pay out the majority of its profits to investors as dividends so that it can qualify for favorable tax treatment. Match up Cedar Fair's payout to that of Disney, and it has an even better sheen: The House of Mouse pays $1.56 at a yield of 1.4% annually, versus Cedar Fair's paying $3.42 per share, or 4.9% annually.
Add in that it doesn't have the anchor of a legacy media empire weighing it down, and trades at less than its earnings growth rate, and Cedar Fair looks like a fun time for all.
This large-cap biotech is in growth mode
Brian Feroldi (Celgene): Disney's multibagger returns are a result of soaring profit growth, so if you want a stock that is capable of following Disney's lead, make sure you find one that is capable of growing its bottom line over time.
On that front, I think that Celgene is worthy of consideration. While Celgene is a large-cap biotechnology stock, the company is still producing eye-popping growth numbers thanks to soaring demand for three primary drugs -- Revlimid, Pomalyst, and Otezla. Revlimid and Pomalyst are used to treat blood cancers (multiple myeloma, myelodysplastic syndromes, and mantle cell lymphoma) while Otezla is used to treat plaque psoriasis. Sales of these drugs grew by 20%, 23%, and 49%, respectively, last quarter, which helped drive total revenue growth of 17% and adjusted EPS growth of 26%. Since all of these drugs are in late-stage clinical trials for label-expansion claims, I think that the strong growth rates can continue.
Beyond its current lineup, Celgene also boasts a pipeline that is bursting with potential. While there are far too many compounds to call out individually, two drugs are worth highlighting.
The first is Idhifa, which is a hopeful acute myeloid leukemia treatment that is licensed from Agios Pharmaceuticals. The drug is currently in the hands of the U.S. Food and Drug Administration, and a go/no-go decision is expected later this month. If all goes well, it could add yet another fast grower to Celgene's lineup.
The second is ozanimod, which Celgene bought a few years ago when it acquired Receptos for $7.2 billion. Ozanimod is in late-stage trials to treat multiple sclerosis, Crohn's disease, and ulcerative colitis. All of these indications have 10-figure sales potentials, which makes this the company's most exciting pipeline drug to watch.
Between its pipeline and its current portfolio of drugs, Celgene's management team believes that the company should easily be able to grow its top and bottom lines by double-digit rates between now and 2020. If that's true, then Celgene certainly looks capable of providing investors with terrific returns.
