The increased global flow of communications is changing the world. Need a way to buy into worldwide growth? How about benefiting from the natural human desire for entertainment?

In the U.S. we tend to take the way we live for granted. Every family member has a cell phone. We get at least 50-100 cable television stations. And we're connected to the Internet at home and at work. We have already undergone a communications revolution of sorts. However, the rest of the world, for the most part, hasn't caught up yet. They're just on the cusp.

An unmistakable trend
The media industry should benefit greatly from this phenomenon. Today's media industry includes both content creators and companies responsible for content delivery, such as cable TV, Internet, phone, and publishing. Some of these companies are tapping into the appetites for entertainment and communications that have proven so lucrative in this country.

Good in a tough market
A timely attribute of some media stocks is that certain forms of entertainment perform well in a tough economy. Entertainment has historically been an industry with natural recession-resistant qualities. People yearn for fiction during times of hard reality. As the economy sputters and uncertain times linger, companies that provide and distribute entertainment may offer a profitable niche in a harsh market. In fact, movie attendance and Hollywood profits are up from last year.

How can we find the companies best positioned to benefit from the communications phenomenon going forward? A Motley Fools CAPS screen can help us out. Our 110,000 member strong CAPS community's four- and five-star rated stocks have vastly outperformed the overall market.

I screened media stocks for the following criteria:

  • EPS growth of at least 10% (a growing business)
  • Return on equity of at least 10% (an efficient operation)
  • LT debt-to-equity ratio no higher than 1 (a solid balance sheet)
  • Beta of less than 1 (less volatile than the overall market)

Company

CAPS Rating

EPS growth (3 Years)

Return on Equity

LT Debt-to-Equity Ratio

Beta (3 Years)

Disney (NYSE:DIS)

****

22.12

13.9

.35

.65

NDS Group (NASDAQ:NNDS)

*****

30.97

18.4

0.0

.53

CTC Media (NYSE:CTCM)

*****

39.12

22.7

.09

.78

Reed Elsevier (NYSE:RUK)

*****

61.69

39.8

0.0

.90

Marvel (NYSE:MVL)

*****

15.05

63.6

1.0

.60

Motley Fool CAPS as of 08/05/2008.

All of the above companies are not only growing the business, but they have been less volatile than the overall market (a beta less than 1) and therefore provide an extra degree of security in uncertain times.

Disney
This is a diversified worldwide entertainment company with a brand name second to none. The fact that it has still been growing nicely even in the face of a tough economy speaks well for the franchise and its propensity to gain sharply when the economy improves.

NDS Group
Based in the U.K., this company provides digital technology for pay television. This is a practical content distributing operation in an area that isn't going away.

CTC Media
CTC operates a huge television network in Russia. The Russian population thirsts for entertainment just like everybody else. They will continue to eat it up, and CTC is extremely well positioned to benefit.

Reed Elsevier
The company is a publisher and information provider for science, medical, legal, education, and business activities primarily in Europe and the U.S. They operate a very practical common sense information distribution business and have done so for over 100 years.

Marvel
This entertainment company has been very successful at using its library of characters to create blockbuster movies. This company seems to have figured out that entertainment for the whole family is the most lucrative. They have plenty more characters and plenty more movies to make.

Companies that didn't make the screen but are worth mentioning include Grupo Televisa (NYSE:TV) and Shaw Communications (NYSE:SJR). Grupo Televisa is a Mexico-based media company that produces and broadcasts television entertainment for the Spanish-speaking world. This is a growing market and this company is well positioned. Shaw provides Internet, cable, and phone services in the U.S. and Canada.

The communications business is in the process of changing the globe and making the world smaller. We are in the midst of a trend that will continue for some time. Entertainment has the added benefit of being lucrative during difficult economic times. Media stocks are both a growth and a defensive story.

What do you think about these stocks and the entertainment story? Speak your mind on Motley Fool CAPS. More than 110,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.