A Bull Market Is Coming: 2 Reasons to Buy Warner Bros. Discovery Stock

Entertainment stocks were hit hard in 2022 as a steep rise in inflation sent investors running for the hills. However, the new year has brought optimism back to Wall Street. Warner Bros. Discovery's (WBD -0.35%) shares are up 59% year to date after plunging over 60% last year. Completion of the company's costly restructuring and the launch of a smash hit in its video game division have encouraged investors.

Warner Bros. Discovery still has a mountain to climb to pay off its debts and reach profitability, as the company took on $43 billion in debt after merging with Discovery last April. However, its long-term outlook is positive, with its stock currently offering the best value among its top competitors.

A bull market is coming, and here are two reasons to buy Warner Bros. Discovery.

1. A lucrative content library and promising new strategy

One of the best reasons to invest in Warner Bros. Discovery is its valuable content. The company is home to hit franchises such as Harry Potter, The Lord of the Rings, Game of Thrones, and DC, giving it compelling avenues to attract consumers.

The company hasn't always taken full advantage of its content assets, with WarnerMedia experiencing dwindling box office returns from new installments to its franchises. For instance, the first film of the Harry Potter-themed Fantastic Beasts series earned $814 million in 2016 from ticket sales, but the 2022 installment earned just $407 million. Warner Bros. Discovery's DC brand has experienced similar declines in consumer interest.

However, the company's merger with Discovery in April 2022 brought on new management and a new strategy. Countless canceled projects last year dragged down Warner Bros. Discovery's stock price, but the moves will likely pay off in the form of boosted earnings over the long term. The company has slimmed down its content to focus almost entirely on its most profitable brands, taking a quality-over-quantity approach.

The new strategy has seen Warner Bros. Discovery bring on Walt Disney's Marvel alum James Gunn to co-lead its DC division and announce more Lord of The Rings movies on the way, with numerous rumors swirling about expansions to its Game of Thrones universe.

Moreover, Warner Bros. Discovery's positions in multiple facets of entertainment, including gaming, streaming, theme parks, and the box office, allow it to exercise the full power of its brands. In fact, the release of its Harry Potter-themed video game Hogwarts Legacy on Feb. 7 proved the validity of the company's new approach to quality content. The game earned $850 million in global sales and sold over 12 million copies in its first two weeks. 

Its immense success has revitalized the Harry Potter brand, with Bloomberg reporting on April 3 that Warner Bros. Discovery is near to closing a deal to develop a new TV series based on the popular book series. The show could mean a boost to subscribers on its streaming platform, HBO Max.

2. A better buy than the competition

Stacked against giants like The Walt Disney Company and Netflix, Warner Bros. Discovery might seem like a bigger risk. However, the company's stock price, along with its long-term outlook, will likely grant more significant gains to patient investors. Analysts seem to agree, giving Warner Bros. Discovery stock a higher 12-month return estimate than either Disney or Netflix, as seen in the table below.

The company's stock is far cheaper than its competitors, suggesting it has room to grow. Additionally, its free cash flow has increased 32% since July 2022 to $3.3 billion, while Disney's has fallen 92% to $94 million, with Warner Bros. Discovery's financials seemingly headed in the right direction.

Warner Bros. Discovery has a long road ahead but seems to be on a positive path toward profitability, making now an excellent time to invest ahead of a bull market.