Dueling Fools: Marvel Bull

What movie headed the box office on the weekend when 2005's 19-week box office slump ended? Fantastic Four.

Many pegged Marvel Enterprises' (NYSE:MVL) latest big-screen effort to fall short of $40 million on its opening weekend. It made $56 million. It's still in theaters, and according to TheNumbers.com, it has grossed $270.2 million worldwide. That makes it No. 172 on the list of movies' largest global grosses ever.

Perhaps the FF will become the third major movie franchise, after Spider-Man and X-Men, in this Motley Fool Stock Advisor recommendation's stable.

Fantastic movies
In the movie business, establishing a film franchise with strong sequel potential is almost a guaranteed path to box-office success. MGM propped itself up for decades on its fortune from secret agent James Bond.

Stock Advisor pick Time Warner (NYSE:TWX) has been lumbering under the load of AOL's declining fortunes. Why hasn't its balance sheet taken a beating? Its Lord of the Rings movies produced combined worldwide box office of $2.9 billion. Add in the three movies (and counting) from a certain Mr. Harry Potter, and you have another $2.6 billion at the box office.

Marvel's better deals
There are two types of people in Hollywood -- those with money and those without.

In years past, Marvel's movie contracts gave it licensing fees and profit participation. They were generally good deals that Marvel used to pull itself out of debt and onto the road to cinematic riches. As the Marvel movies boomed, the company was able to negotiate gross participation contracts, a much better deal.

Now, after years of success, cash-rich Marvel is able to demand equity participation. That's the best deal available without taking on a film's full financial risk.

In April, the company announced it would produce 10 movies of its own over an eight-year period while continuing its preexisting studio collaborations. Marvel is finally poised to accept the bulk of the risk and reward from producing motion pictures.

Marvelous movie metrics
Movies are a font that just keeps flowing. Even after the film hits theaters, Marvel can cash in on toys, games, comics and other books, fast food tie-ins, and apparel. Over time, there are also DVDs, pay-per-view fees, cable and TV licenses, and more toys and games.

Video games are increasingly important. For example, fellow Stock Advisor pick Activision (NASDAQ:ATVI) released a Fantastic Four game to tie in with the film. The movie and game benefited from each other's advertising.

One new concept is the Marvel Nemesis: The Imperfects fighting game. Marvel superheroes will battle The Imperfects, opponents created by game giant (and, yes, fellow Stock Advisor pick) Electronic Arts (NASDAQ:ERTS). If an Imperfect catches on, Marvel has the exclusive license rights for the character in media and consumer products. How sweet is that?

Oh, and let's not forget the recently signed deal with Microsoft (NASDAQ:MSFT) for the use of Marvel's "iconic universe" of superheroes in massively multiplayer online games.

Looking ahead to 2006
Marvel's next big movie is the May 26, 2006 release of X-Men 3. However, my pick for the lower-budget smash hit of the summer is Sony's (NYSE:SNE) July 8 release of the motorcycle-riding Ghost Rider, starring comics fan Nicolas Cage. Add in ThePunisher 2, and 2006 looks like a revenue bonanza that analysts have yet to acknowledge.

Analysts predict Marvel will average earnings growth of 15% annually for the next five years, and foresee 7% per-share earnings growth for 2006. Between the movies, the new game deals, and a Lions Gate (NYSE:LGF) partnership that will yield the first of four direct-to-video original animated features, I think Marvel's earnings are underestimated.

At 17.7 times trailing earnings, Marvel is an inexpensive growth stock with many budding business opportunities.

You're not done, True Believer! This is just one pulse-pounding part of a fantastically Foolish four-part Duel! Don't miss Titanic Tim Beyers' bearish beginning, Tim's rebuttal, and Dazzlin' W.D.'s final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

Marvel, Activision, Electronic Arts, and Time Warner are all Motley Fool Stock Advisor picks. For more superheroic stocks from the mighty minds of Tom and David Gardner, subscribe today for a 30-day free trial.

Fool contributor W.D. Crotty owns shares in Marvel Enterprises. Click here to see The Motley Fool's disclosure policy.