- Cable One (CABO): While a strong performer since its debut in 2015, the same can’t be said about its potential performance going forward.
- Carnival Corporation (CCL): Many challenges signal it’s not time to go “full steam ahead” on this cruise line operator’s shares.
- Caesars Entertainment (CZR): Be careful about placing a wager that it makes an earnings comeback in line with expectations.
- Las Vegas Sands (LVS): Like other names with high exposure to Macau, skip out on this Asian gambling play.
- Penn National Gaming (PENN): The factors likely to put more pressure on CZR stock will put more pressure on PENN stock as well.
- TripAdvisor (TRIP): Sell-side analysts have walked back earnings estimates, signaling more disappointment ahead.
- Warner Bros. Discovery (WBD): A lot needs to happen before this streaming-focused media conglomerate can rocket higher.
“Entertainment stocks” is a term that covers a wide swath of sectors. Besides companies one would consider being in the entertainment business (i.e. content production/distribution), the term encompasses other leisure industries. A good example would be casino and cruise line companies.
But no matter what sub-category you’re talking about, it’s easy to list off names that have taken a big dive in recent months. You can blame this on a variety of factors. Rising interest rates, and with them rising fears of an economic slowdown/recession have made many in the market bearish on these types of plays. Yet alongside this external factor, are issues pertaining directly to many of these stocks.
In some situations, it’s possible investors have overreacted to the possibility of headwinds ahead. For others, though, like in the case of these seven entertainment stocks, the current bearish sentiment for each of them appears to be right on the mark:
| CABO | Cable One | $1,354.45 |
| CCL | Carnival | $19.34 |
| CZR | Caesars Entertainment | $67.56 |
| LVS | Las Vegas Sands | $37.33 |
| PENN | Penn National Gaming | $37.04 |
| TRIP | TripAdvisor | $25.99 |
| WBD | Warner Bros. Discovery | $21.27 |
Cable One (CABO)
If you’ve held onto Cable One (NYSE:CABO) stock since it was spun-off from Graham Holdings (NYSE:GHC) in 2015 have seen spectacular returns. During this timeframe, shares in this company, which provides cable and internet services under the Sparklight brand, are up by more than 250%. This is true even when you account for its big drop since last September.
However, despite this strong long-term return, that doesn’t mean it’s wise to enter a position in CABO stock right now. Although its consistent earnings growth helped to justify its initial run, at some point the stock got ahead of itself.
That is, moving to a valuation that’s more than reasonable given its long-term prospects. At current prices, it trades for 29x estimated 2022 earnings. Combine its premium valuation, with two big earnings misses in a row, and it has a lot of room to drop if there’s more disappointment.
This stock has a “D” rating in my Portfolio Grader.
Carnival Corporation (CCL)
Shares in cruise line operator Carnival (NYSE:CCL) got ahead of themselves last year, when investors overestimated how quickly this industry would get over the pandemic.
As the rise of new variants stretched out its “return to normal” date, CCL stock has dropped since last summer. It’s gone from around $30 to around $20 per share. With a lot more uncertainty priced-in, you may think it has been oversold. However, keep a few things in mind.
It’s not set in stone that the cruise recovery continues. If a recession hits, it may take even longer for Carnival to re-hit pre-virus passenger volumes. The big run-up in energy prices could also impact its performance. Add in on top of this the big increase in its outstanding debt since 2020 (as InvestorPlace’s Ian Bezek pointed out last month), and it’s clear Carnival is saddled with too many problems to make it a buy.
This stock has a “D” rating in my Portfolio Grader.
Caesars Entertainment (CZR)
The rise of i-gaming, plus the land-based casino industry’s surprising resiliency during the pandemic, was a boon for Caesars Entertainment (NASDAQ:CZR) and other casino gaming stocks.
These two factors resulted in a move to unsustainable prices for popular plays in the space. This has started to correct. Mainly, due to investors’ rising concerns about the future profitability of the online sportsbook space. Forced to spend heavily on marketing/promotions to attract customers, it’s starting to look as if this sector will not be the “license to print money” many believed it would be as recently as six months ago.
Some analysts may be saying that the premium once priced into CZR stock has disappeared. Still, as the prospects of an economic slowdown, prompted by interest rates rising in response to high inflation? It’s hardly a lock this legendary gaming company will deliver the level of earnings necessary to sustain today’s valuation.
This stock has a “D” rating in my Portfolio Grader.
Las Vegas Sands (LVS)
When you think of Las Vegas Sands (NYSE:LVS), you may be thinking about The Venetian and The Palazzo properties on the Vegas strip. Yet with the sale of these properties in 2021? This stock is now purely a play on gaming in Asia (primarily Macau).
For now, that’s a risky bet to make. As the virus returns to China in a big way, it’s having an impact on gross gaming revenue in Sands’ flagship market. It’s also important to note that the company’s level of revenue is already expected to remain far below pre-pandemic levels during this year.
With the uncertainty over when (if ever) Macau makes a comeback, even if you’re bullish on gaming, this isn’t a name to consider. The same applies to two other casino stocks with high exposure to Macau. Those are Melco Resorts & Entertainment (NASDAQ:MLCO) and Wynn Resorts (NASDAQ:WYNN).
This stock has a “D” rating in my Portfolio Grader.
Penn National Gaming (PENN)
During 2020, excitement over the launch of its Barstool Sportsbook platform fueled a speedy price recovery for Penn National Gaming (NASDAQ:PENN). From there, this casino operator became a meme stock. Its shares skyrocketed to a price that was by no means tied to its underlying value.
However, since early 2021, “skyrocketing” hasn’t been a word used often to describe it. Between its underwhelming performance in terms of grabbing market shares, coupled with the markets overall shifting sentiment on online gambling plays, shares have plunged nearly 73% from their all-time high of $136.47 per share.
If you think this means big upside potential for those choosing to bottom-fish in it today, think otherwise. The same factors that point to lower prices ahead for Caesars shares also point to lower prices ahead for PENN stock. Even at today’s prices, at which it trades for a reasonable valuation (19x earnings). As far as entertainment stocks go, this one is a flop.
This stock has a “F” rating in my Portfolio Grader.
TripAdvisor (TRIP)
Yes, TripAdvisor Inc. (NASDAQ:TRIP) isn’t exactly what comes to mind when you think of entertainment stocks. I’ll admit that it’s an indirect relationship. At best, you can say that it’s an entertainment stock, in that sometimes people use its platform to plan out casino and cruise vacations.
Nevertheless, TRIP stock is a name to avoid. Yes, it has dropped by more than 50% since last spring. The “reopening trade” is no longer so heavily priced into it. That said, it may be continuing to price-in a big jump in earnings that may fail to arrive.
Over the past three months, the sell-side has been walking back its estimates. Previously anticipating earnings per share (EPS) of $1.23 in 2022, and $1.84 in 2023, the Street now sees TripAdvisor reporting EPS of 89 cents per share this year, and $1.65 per share next year.
This stock has a “D” rating in my Portfolio Grader.
Warner Bros. Discovery (WBD)
With its merger with AT&T’s (NYSE:T) WarnerMedia segment now complete, the combined Warner Bros. Discovery (NASDAQ:WBD) began trading earlier this month. Put simply, don’t rush out to buy it. Instead, take into account what needs to happen before shares (possibly) see a big jump in price.
What needs to happen? It needs to turn its two streaming platforms (Discovery+ and HBO Max) into a highly profitable segment. The first step it seems to do that is to merge them into a single platform under the HBO Max brand. It still needs to be profitable enough to outweigh the decline of its legacy cable television segments. Competition from both big tech and big media rivals could get in the way.
A bona fide “show me” situation, there’s no rush to get into WBD stock. Especially given the high chance that AT&T’s dividend-focused shareholder base, who received shares as a stock dividend, continues to cash out of it in droves. The situation may change if it drops to lower prices, yet for now, consider it a stock to avoid.
This stock has a “D” rating in my Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.