In 1957, The Walt Disney Company was just two years removed from opening its first theme park. The release of The Little Mermaid was 32 years away and Frozen's theatrical debut was 56 years down the line. It wouldn't be until 1995 that the company acquired the ABC network and another year after that when it purchased a controlling stake in ESPN. While Disney seemed to be on top of the entertainment world in 1957, the media giant had yet to record many of its biggest achievements, and its stock's incredible run was just starting out.
To find stocks that are poised to deliver similarly incredible performance, we assembled a panel of three Motley Fool investors and asked each to profile a company with a promising future. Read on to see why they picked American Outdoor Brands (SWBI -1.02%), Amazon.com (AMZN -1.65%), and Activision Blizzard (ATVI).
Image source: Disney.
Scoping out the possibilities
Rich Duprey (American Outdoor Brands): In 1957, Disney understood that its core business was centered on its movies, but it had a portfolio of opportunities that both undergirded the films and was supported by them: TV shows, comic books, magazines, and, of course, Disneyland, which had opened two years prior.
To match that, I looked for a company that had a core interest that centered it but was also symbiotically buttressed by ancillary activities that could grow for decades to come. This might sound incongruous to some, but American Outdoor Brands is very much like that far-removed Disney.
American Outdoor is the parent of gunmaker Smith & Wesson, which is its primary moneymaker, accounting for 80% or so of its revenue. But it has now branched out into what it calls the "rugged outdoors" market, and this provides the potential for additional supported growth.
Hunters and other outdoor enthusiasts, for example, will purchase the survival and camping gear of the UST brand it acquired. While gun owners will buy the laser sights sold by leading manufacturer Crimson Trace, which it also bought.
It wasn't so much an amalgam of businesses American Outdoor Brands was throwing together, but rather intricately related companies that all offered support to and would benefit from its firearms business.
The shooting sports industry is severely depressed at the moment, which ends up valuing the gunslinger at just eight times earning and estimates. When the firearms market rebounds, as it eventually will, and as American Outdoor Brands expands further into the rugged outdoors market, its stock should shoot skyward as well.
Doing for retail what Disney did for entertainment
Chuck Saletta (Amazon.com): In the mid-1950s, Disney branched out into theme parks with the opening of Disneyland. That brought a transformative physical presence to the entertainment company that helped cement it as the powerhouse it's become today. Flash-forward a few decades, and today we have Amazon.com establishing its physical presence in retail, thanks to its recent acquisition of Whole Foods Market.
The changes facing Amazon.com are likely to be monumental. To start, connecting physical stores to warehouses requires more inventory, labor, and logistical complexity than just running warehouses does. Amazon.com has already implemented changes at Whole Foods, such as lowering prices to drive more traffic and thus better leverage the high fixed costs of store ownership.
What Amazon.com is probably quickly discovering is that consumers want both the convenience of online purchases and the different type of convenience of physical retail purchases. Done right, Amazon.com can leverage its superior technological platforms and willingness to invest in its infrastructure to better deliver on the best of both halves of its business.
As Wal-Mart is finding out, even rudimentary merging of online and in-store operations can drive great growth. With Amazon.com approaching the omnichannel effort from the opposite direction of Wal-Mart, it will probably deliver even more innovative integrations to seamlessly merge physical and online retail. Indeed, people may one day view Amazon.com's retail stores the same way they view Disney's theme parks -- as an experience to be shared, remembered, and repeated.
A rising software-as-a-service star
Keith Noonan (Activision Blizzard): As Rich and Chuck mentioned above, Disney was still in the early phases of building its media empire in the 1950s. I think the same is probably true of Activision Blizzard today.
The publisher is responsible for many of the biggest franchises in video games and regularly generates the best sales and profitability among industry pure plays. There are reasons to think the company still has huge growth avenues ahead. For one, more people are playing games than ever before, and Activision's addressable market should see major expansion as its properties become increasingly popular in countries such as China and India. Growth for full-game downloads and in-game item purchases is also on track to continue making the company's sales mix more profitable.
Activision Blizzard has big opportunities outside its core competency as well. Esports is quickly gaining traction and is an entertainment category that has the potential to be a substantial revenue generator as well as a powerful advertising tool. The company is in the process of creating television and film versions of some of its biggest franchises -- with Skylanders set to get its third season on Netflix, a Call of Duty movie universe in the works, and rumblings that Overwatch could also be headed to the big screen. Activision Blizzard is also bridging these properties, and others, into the consumer products space, and its franchise catalog and expertise in interactive entertainment make the company one of the most promising ways to invest in the rise of mixed-reality technology.
With a leading position in the video game industry and signs of an unfolding media empire, Activision Blizzard is a stock that could deliver magical performance over the long term.
