Without a doubt, the movie and television industry is a great place to start looking for stocks. After all, the movie and TV industry is relatively easy to understand and gives investors a way to profit from tangible products that millions of people enjoy. That said, not all movie and television stocks are created equal. Investors should strive to find the strongest companies that know not only how to create and profit from the best movie and TV content, but also how to consistently produce shareholder value in the process.
In my opinion, that's why these are currently the three best stocks if you want to invest in movies and television.
1. The Walt Disney Company (NYSE:DIS)
First, consider arguably the most successful entertainment conglomerate in history: The Walt Disney Company. After all, Disney not only benefits from its namesake movie studios, television networks, and theme parks and resorts, but it also owns all of ABC Family, holds an 80% stake in ESPN, and claims 50% of the A&E Networks family of channels. And thanks to Disney's propensity for astute acquisitions of premium brands, it also purchased Pixar in 2006, Marvel Entertainment in 2009, and Star Wars and Indiana Jones owner LucasFilm in late 2012. When the credits roll, Disney can also look forward to capitalizing on related merchandising through its consumer goods and interactive gaming segments.
Considering the success of Disney's movie franchises, as well as record attendance at its parks and resorts last year despite another ticket increase, Disney just capped another record year of financial performance in fiscal 2014. And in Disney's most recent quarter, revenue climbed 7% year over year, while earnings per share rose an even greater 14%. Cash flow from operations jumped 15% to just over $2.9 billion over the same period, while free cash flow climbed 10% to $2 billion. That's great for shareholders, as Disney consistently returns at least 20% of all cash it generates to investors in the form of dividends and share repurchases. For investors willing to wait and allow time to further compound their returns, Disney continues to be a fantastic long-term bet.
2. Netflix (NASDAQ:NFLX)
Next, we can't ignore Netflix, which is effectively disrupting the traditional cable TV market as we know it. The streaming-video specialist added a company-record 4.9 million new members globally last quarter alone, ending with over 60 million subscribers. What's more, 2.6 million of Netflix's newest members came from international markets last quarter -- above its forecast for 2.25 million member additions -- and only one-third of Netflix's total subscriber base is currently outside the United States. In addition, Netflix only just launched in Australia and New Zealand on March 24, adding another 8 million broadband households to its addressable market.
At the same time, Netflix stock doesn't exactly look cheap, based on traditional valuation metrics. Shares currently trade at 162 times trailing-12-month earnings, and 178 times next year's estimates, indicating that earnings are expected to decrease in the coming year. But that's primarily because Netflix is aggressively investing in content and advertising to help grow its market share as quickly as possible -- a crucial move in these early stages as broadband-connected households and, in turn, online video streaming both become more pervasive. As Netflix seizes the market and subscriber growth slows over time, bottom-line profits should follow down the road. In the end, even though Netflix has already rewarded investors handsomely, its long-term thesis continues to play out with significant growth potential yet to be realized overseas.
3. Discovery Communications (NASDAQ:DISCA)(NASDAQ:DISCB)(NASDAQ:DISCK)
Finally, put your feet up and watch Discovery Communications generate superior returns. Discovery already has a solid foothold in the traditional television industry with developed regions such as the U.S., most notably thanks to TLC, Animal Planet, and its namesake family of channels. And though traditional markets will probably continue to fade over time in developed regions, Discovery is also working hard to ensure it owns and invests in leading content that can be easily leveraged across its global distribution platform. Put another way: With relatively little overhead, 85% of Discovery channel content translates easily from its core domestic viewers to emerging markets such as China and Brazil.
Discovery also secured its first content and streaming media agreements last year with streaming platforms including Sony's PlayStation Vue and Hulu. Financial contributions from the latter only began on Jan. 1. And yes, these two deals alone might seem relatively underwhelming, but more than anything, I think investors should consider them just the start of Discovery's long-term streaming licensing efforts.
Finally, like Disney, Discovery has a history of using its cash to reward investors. Last quarter, for example, the company spent a total of $317 million repurchasing 8.1 million shares of stock. As long as Discovery continues smartly leveraging content to gain share in both traditional and streaming media markets around the globe, and with shares currently trading around 26% below their 52-week-high, I think there's a high likelihood those repurchases will look like a brilliant move down the road.
Steve Symington owns shares of Apple. The Motley Fool recommends Apple, Discovery Communications, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Discovery Communications, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.