The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."
But, please, make no mistake -- "Stock Madness 2005" is a GAME!
Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.
Marvel (NYSE:MVL)
New York, N.Y.
$18.59
52-week low-high: $12.15-$21.95
$1.9 billion market cap
By Rick Aristotle Munarriz (TMF Edible)
So you loved Spider-Man2, can't wait for Fantastic Four this summer, and still find yourself playing with those rubber sound-activated Hulk fists. Marvel, which is a Motley Fool Stock Advisor recommendation, thanks you. It may have taken the comic book giant decades of simmering to finally start cashing in on its massive superhero properties, but these days it knows exactly what it's doing -- so look out!
In the process of tapping into its vibrant library of brooding antiheroes and sinister villains, the company has been able to generate lucrative licensing streams, and that is just the beginning.
Sure, the Spider-Man and X-Men franchises have been huge Marvel-licensed hits for the movie studios. The sequels will continue; Sony (NYSE:SNE) already has the third Spider-Man flick pegged for a 2007 release. If an originally obscure property such as Blade was enough to generate a trilogy, what about the current Marvel movie deals being negotiated for Captain America, Thor, and Silver Surfer?
Marvel has hundreds of characters ready to bust out of the printed page, and the way the company's filmed do-gooders have generally rocked the box office, Marvel's finding itself in an even better negotiating position with every passing celluloid franchise.
It's not just film revenue. The renewed popularity has toy and video game makers, vitamin and cereal makers, and just about any brandable consumer product hitting Marvel up for licensing rights. Fantastic Four? It should be good for a hit movie, $80 million in toy sales, and an animated series for kids next year. Lather. Rinse. Repeat.
What happens when you keep stacking revenue stream on top of revenue stream? You get a gushing river. Marvel is trading at just 17 times clean earnings -- and it's only just starting to get its feet wet.
Fool contributor Rick Munarriz really does have a pair of those rubbery Hulk hands lying around the house. He's a fan of Marvel, but he does not own shares in any of the companies mentioned in this tournament match.
Rofin-Sinar (NASDAQ:RSTI)
Plymouth, Mich.
$34.01
52-week low-high: $19.04-$42.93
$512.8 million market cap
By John Reeves
If Rofin-Sinar were a basketball team, it would be known for skillfully executing the backdoor cut while wearing its Chuck Taylor high-tops. In other words, this is a no-nonsense, well-managed firm that has been able to deliver solid results for its shareholders. And despite its low-key approach, this company can put up big numbers, having increased revenues by 25% and earnings by 112% in 2004.
Rofin develops and manufactures lasers and laser-based solutions for industrial materials processing, an industry that includes competitors such as GSI Lumonics (NASDAQ:GSLI) and Trumpf. It is active in every sector of the industry, from marking smart cards to cutting materials for spacecraft. The majority of its sales come from Europe, but it is expanding rapidly in the U.S. and Asia.
I recommended this company back in October for Motley Fool Hidden Gems, and since then, it is up 26%. I liked its increasing dominance in the growing industrial laser industry as well as its ability to generate free cash flows. There remains a lot of room for Rofin to grow, and I'm confident the company will deliver solid earnings over the next five to 10 years.
The immediate short term might require some patience on the part of investors, however. Despite increasing sales by 29% and earnings by 69% in the first quarter of 2005, the stock is down 17.6% since the results were released back in February. Management indicated that the expiration of a license agreement would affect second-quarter earnings but was confident that it would meet expectations for 2005. Despite solid financials and a proven record of performance, this is a volatile stock that carries some risk alongside its promise of healthy returns.
One thing that Rofin doesn't do is hype. Its conference calls are fairly ho-hum affairs where stellar earnings are reported in a dry and matter-of-fact fashion. In an age of spin and hoopla, this is a decidedly Old World management team that doesn't feel the need to micromanage its stock price. That might frustrate some investors, but I think it's one of the company's great strengths. Just as you are being lulled to sleep, the forward cuts across the key, receives a two-handed chest pass, and then lays it up off the glass for two points. These guys might not be flashy, but they sure know how to run their business.
John Reeves does not own any companies mentioned in this article.
Rebuttals
Rofin-Sinar? That's about as good a villain name as Marvel is likely to create. And it makes lasers? Perfect! Still, I like the character-rich Motley Fool Stock Advisor pick over John's worthy selection because while Rofin-Sinar will have to make sure that it remains perpetually on the cutting-edge of industrial laser technology, Marvel's already done the heavy lifting. The characters are there. The future is passive, potent, and perfect. -- R.A.M.
I'm actually a huge fan of Marvel. So much so that I've seen the first Spider-Man movie about a half-dozen times. I do have some concerns about Marvel's stock, however. Shares of the company lost 32% in just one month last summer. Approximately 20% of earnings in 2004 came from a one-time, non-cash tax credit, and revenues are expected to decline in the next quarter. This stock carries a lot more risk than Rofin-Sinar without the potential upside. If Marvel were a basketball team, it'd be the Harlem Globetrotters. No doubt delightful for fans to watch, but I wouldn't be wagering money on them in a real game. -- J.R.
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