Bear markets aren't fun. But instead of panicking, investors should look at this as an opportunity to bet on quality companies at significant discounts. MGM Resorts International (MGM -0.80%) and Walt Disney (DIS -2.81%) have what it takes to survive these challenging times and bounce back better than ever.
Let's explore some reasons why.
1. MGM Resorts International
Down 25% year to date, MGM Resorts hasn't escaped the 2022 market plunge. But the company's casinos and hotels are relatively inflation-resistant. And business is roaring back to life as the world shrugs off the effects of the coronavirus pandemic, so it might be time for investors to make a potentially winning bet.
MGM's first-quarter net revenue jumped 73% year over year to $2.9 billion, driven by a dramatic recovery in Las Vegas, which more than tripled its top-line contribution to $1.7 billion. And the Las Vegas resurgence is more than just good comps against the pandemic years -- that figure is 16% higher than the corresponding period in 2019.
MGM plans to drive continued growth by investing where it is already winning. In May, management finalized the $1.63 billion acquisition of The Cosmopolitan, a massive luxury casino resort on the Las Vegas Strip that can expand MGM's market share in this important region. The company also has high hopes for its sports betting and online gambling platform, BetMGM, which it plans to roll out to an additional 10 to 15 new markets by the end of 2023.
As a casino operator and hospitality company, MGM's business model requires significant upfront investments to build (or buy) its properties. But unlike a retail business, it isn't hugely reliant on inflation-vulnerable variable costs, making it well suited to survive in a high-inflation economy.
2. Walt Disney
Like MGM Resorts, Walt Disney hasn't been spared from the bear market, with shares down 33% year to date. But despite the dip, the company's long-term bull thesis remains strong. Disney's amusement parks are enjoying a post-COVID-restrictions rebound, and its streaming business, Disney+, is on a fast track to industry dominance.
The coronavirus crisis may have permanently shifted consumer behavior and spending patterns, and Disney is a beneficiary of this trend. Second-quarter revenue surged 23% year over year to $19.2 billion with the contribution from amusement parks more than doubling to $6.65 billion. The company also reports stellar growth in its streaming business, which generated $4.9 billion in second-quarter revenue (up 23% year over year) and boasts 205.6 million subscribers across Disney+, Hulu, and ESPN+.
When it comes to streaming, Disney's competitive advantage is original content. The company has a treasure trove of intellectual property, which it can use to pump out shows based on already-popular franchises such as Star Wars or the Marvel Cinematic Universe. Management is building on this edge.
In the second quarter, the company terminated $1 billion worth of film and television license agreements to move the content over to its fast-growing streaming platform. This move sacrifices near-term profits to help maintain direct-to-consumer momentum and could help Disney's streaming businesses remain a leader in the industry.
Investing for a rebound
While it's tempting to steer clear of the stock market at a time of increasing volatility, investing remains one of the best ways to build wealth over the long term. And with a U.S. inflation rate standing at 8.5%, hoarding cash isn't a sustainable alternative.
While we don't know when the bear market will end, MGM Resorts and Walt Disney look positioned to bounce back from the crisis stronger than ever because of their industry-leading brands and convincing strategies for continued dominance in their respective industries.