3 Stock Picks in the Entertainment Sector

VIDEO: Rachel Winter, associate director at Killik & Co tells Morningstar senior editor Holly Black why she likes Disney, Spotify and Electronic Arts. 

Holly Black 7 June, 2019 | 9:42AM
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Holly Black: Welcome to the Morningstar series "3 Stock Picks." I'm Holly Black. With me in the studio today is Rachel Winter. She is Associate Investment Director at Killik & Co.

Good morning.

Rachel Winter: Good morning, Holly.

Black: So, you are here to tell us about three stocks you've been looking at over the last few weeks.

Winter: Yeah, exactly. So, I am looking at three entertainment stocks this week, and the first one is Spotify. So, clearly, a very big name, came to the market fairly recently, just last year and actually, it's come down quite a lot since it was first listed. It got caught up in the kind of tech sell-off towards the end of last year and we just think it's quite oversold. It came to the market at $180 and now it's round about $135. So, at the moment, we think it looks fairly cheap.

Black: I suppose one of the concerns with these big tech stock IPOs is that a lot of them aren't actually making money as a business yet. So, does that concern you?

Winter: It does for some companies, but not for Spotify. So, you are absolutely right in saying it's not making a profit at the moment, but you've just got to look at the revenues and the potential growth there. So, at the moment, Spotify has got over 200 million subscribers, that's growing all the time and another thing that we like is that Spotify is moving into podcasts. So, in the last few months, Spotify has bought three podcasting platforms and we think that's a huge growth area and a great complementary addition to the music that Spotify already has.

Black: And do you have a fair price on it?

Winter: We don't tend to set target prices just because we are long term investors. We tend to buy stocks and hold them for the long term, ideally years and years and years. So, all I can say is, I think it's worth a lot more than the current price.

Black: So, what's another stock you've been looking at in the entertainment sector?

Winter: Next one is Disney. So, clearly, a huge name in entertainment. And the reason for buying this is that we think people are now watching content on loads of different streaming platforms. People are not particularly loyal to any one streaming platform. So, for example, I have Netflix and I have Amazon. I think a lot of people have multiple streaming platforms because they are so cheap. So, the companies that you want to own are the ones that own the actual content. So that's why we like Disney. It's got a huge catalog of extremely valuable content. So, films and series and just look at the recent content that's come out of Disney, so all of these Marvel films. The last Avengers set a huge numbers of box office records. It's also got the Star Wars and it's also remaking all of these old Disney classics. Lots of incredibly valuable content there.

Black: Can they hold the prices on their content or to join such as Amazon, Netflix drive the prices down?

Winter: No, I believe Disney can't hold them in prices. But what we are seeing coming from next year is that Disney will be setting up its own streaming platform. So, all of the Disney content will be taken away from Amazon and Netflix and put on to this one Disney platform all in the same place.

Black: What's your final stock pick for us?

Winter: The final stock is Electronic Arts which is one of the largest video gaming companies in the world. So, we think video gaming is a hugely growing market. It's currently worth about $120 billion. And since 2012 it's been growing at over 12% per year and we think that growth is set to continue. And within gaming you've got hugely loyal fan base and these fans will buy the same game every year when a new version is released. So, for example, FIFA a new version comes out every year and all of these fans will rush out and pay more for the latest version. But also, more recently, we've seen a huge growth in eSports. So, people are watching other gamers playing games on YouTube, on platforms like Twitch and also in huge sporting arena. So, we think that growth in eSports will bring more focus towards video games themselves and that will help the market to grow even more.

Black: Thanks so much for your time.

Winter: You are welcome.

Black: Thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Electronic Arts Inc127.75 USD-1.09Rating
Spotify Technology SA302.82 USD1.58Rating
The Walt Disney Co103.25 USD-0.12Rating

About Author

Holly Black  is Senior Editor, Morningstar.co.uk


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