The stock market has been quite volatile of late over near-term fears about Russia's invasion of Ukraine, higher inflation, and the expectation of raised interest rates. But as Warren Buffett has proven for decades with his value-based investing strategy, being greedy when others are fearful can pave the way to many years of excellent returns.
Of course, it's important to focus that greed on the right stocks, and the entertainment industry is one of my favorite sectors to hunt through for promising investment opportunities. Companies that own popular media properties start off well-positioned to deliver great returns over the long term.
Two of my favorite entertainment stocks to buy right now are Walt Disney (DIS 0.03%) and video game maker Take-Two Interactive (TTWO 0.20%). Here's why these companies should grow in value for years to come.
Image source: Getty Images.
1. Walt Disney
If you had invested $10,000 in Disney 40 years ago (and reinvested your dividends), your stake in the company would be worth $1.9 million today. The House of Mouse has been entertaining families for 100 years, and it should keep going strong for decades.
But there's a fire sale happening in the Magic Kingdom right now. The stock price has fallen by 15% in the last six months, even on the heels of Disney's strong holiday quarter, during which its revenue surpassed its level from two years prior, before the pandemic cut into results across the entertainment giant's numerous business segments.
Disney is seeing a nice recovery in its theme park business -- revenue from its parks, experiences, and products unit more than doubled year over year in the recent quarter. Streaming revenue from Disney+, ESPN+, and Hulu increased by 34% year over year.
Combined, the parks and direct-to-consumer (streaming) segments provided 55% of Disney's total revenue last quarter. One aspect of this company that investors should love is its ability to leverage the popularity of new shows and movies from its Star Wars and Marvel franchises to help attract more visitors to its theme parks. These assets complement each other well.
Currently, Disney's share price is up only 26% since April 11, 2019 -- the date that management unveiled Disney+. Streaming will be a major long-term growth catalyst for the company, and it's just getting started monetizing its newest digital distribution platform. I wouldn't hesitate to buy Disney shares at these levels.
Image source: Getty Images.
2. Take-Two Interactive
My interest in Disney partly explains my interest in video game stocks. As great as Disney's opportunities are in streaming, the video game industry presents similar opportunities for its biggest game producers. Various estimates put the combined value of the movie and music industries at somewhere around $150 billion annually, but annual sales of video games are estimated to be around $200 billion, and further growth is expected in the next few years.
Take-Two is one of the big three U.S.-based video game companies. Its peer Activision Blizzard is in the process of being acquired by Microsoft for $68 billion in cash, which suggests just how much value there is in the industry's leaders right now.
Take-Two's top franchise is Grand Theft Auto, which has sold a cumulative 350 million units worldwide across the many installments in the series over the last few decades. Take-Two also has successfully capitalized on the growing popularity of the NBA in recent years with its best-selling NBA 2K series.
Leading video game companies have shifted to digital distribution of their titles over the last decade, which has proved to be a better model than relying on the relatively low-margin sales of physical game discs. This has fueled their profit growth and helped them provide market-beating returns to shareholders. A $10,000 investment in Take-Two Interactive made in February 2012 would be worth $103,000 today.
Looking ahead, Take-Two has a big opportunity to attract more of the new players who picked up the hobby during the pandemic to its leading franchises. Plus, its pending acquisition of mobile game maker Zynga could fuel higher margins as it integrates that company's in-game advertising capabilities with its deep catalog of titles.
The combination of industry growth and expanding margins makes Take-Two a great investment.
