What’s gone wrong?

Before going on, it’s worth recapping why investor sentiment has reversed so dramatically. Much of this year’s sell-off is the result of concerns over Netflix’s slowing subscriber growth. A few days ago, the company revealed it was targeting just 2.5 million new accounts in the current quarter. That’s 4.4 million less than analysts were expecting.

But is this just a blip? I can think of a few reasons why now might be a great time to load up.

Reasons to buy Netflix stock

First, this is a business that has shown it can produce quality content. Series like Squid Game, The Crown and Bridgerton have been warmly received by critics and viewers. The company’s rapidly growing film catalogue is also doing well. Last week’s share price capitulation was as if investors believed the US giant was suddenly incapable of maintaining this form. 

I also think a Netflix subscription has become so ingrained in many people’s lives (and that TV consumption has changed so much in recent years) that a lot of us wouldn’t even consider cancelling, even in inflationary times. The value for money compared to even a single cinema trip is truly astounding.

It’s also worth noting that Netflix is not alone in seeing a drop in subscriber growth. Back in November 2021, shares in Disney tumbled as it also reported that fewer people than before were signing up to its own streaming service. Isn’t all this inevitable as the pandemic enters its end-game and lockdowns become distant memories?

Worse to come?

For balance, let’s look at some arguments against buying now. It’s important to not get anchored to a price. Netflix stock doesn’t have a right to get back to its $700 record high, as much as holders might want it to. It could easily fall further as investors rotate into value stocks held back by Covid-19. And they might be right to do so. These may offer potentially better returns, at least in the short term. 

Another argument is one that can apply to any company in the entertainment business, namely the popularity of whatever it produces is never guaranteed. Simply put, Netflix can throw money at a project and have no idea whether it will make a decent return on its investment. I’d need to be comfortable with this if I invested here.

Last, there’s the competition. While Netflix is the clear market leader, Amazon, Apple and the aforementioned Disney aren’t about to throw in the towel. As such, I certainly don’t think there’s anything wrong with taking a risk-off approach and buying a tech-focused fund that holds some or all four stocks.

Expectations lowered

On balance however, I’m very tempted to snap up some Netflix stock for my own portfolio. Now that previously-lofty expectations have been thoroughly reset, the company may even now surprise on the upside in its next update.

Even if this doesn’t happen, the long-term outlook — which now includes an expansion into video gaming — still looks stellar to me. And for someone with a totally different time horizon to your average fund manager, that counts for a lot.

The post Is it finally time to buy Netflix stock? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cineworld (LSE: CINE) shares have climbed over 30% in value since the start of 2022. That’s not something I can ignore, especially as I’ve been bearish on the company for as long as I can remember.

Does the stock’s resurgence over recent weeks mean it’s now far too cheap and that there’s money to be made? Possibly. That said, there’s another company I’d be far more interested in buying right now.

Cineworld shares: Mission Impossible?

To be fair, Cineworld’s last update was actually better than I expected. Attendances had “steadily grown” over the six months to the end of 2021, no doubt boosted by the release of the long-awaited No Time to Die. The latest Spider-Man movie has also helped to improve revenue, allowing the company to generate positive cash flow again. 

The forthcoming slate of movies should build on this momentum. The new Batman film, releasing in March, Jurassic Park: Dominion, out in June, and Mission: Impossible 7, debuting in September, should be nailed-on blockbusters. The removal of Plan B restrictions in the UK, including the requirement to wear face masks, could/should prove another shot in the arm for Cineworld shares. 

But let’s be sensible. When it comes down to it, the odds of this business thriving again aren’t great. Even if Cineworld is successful in its appeal against the legal case it recently lost against Cineplex, the sheer amount of debt on the company’s books is a huge reason to steer clear.

The fact that it’s still the most heavily shorted stock on the entire UK stock market is another. Now throw in the competition it faces from streaming services. Speaking of which… 

Taking the Mickey 

If I were to buy a recovery play in the entertainment space right now, it would be US giant Disney (NYSE: DIS). Priced at a just over $200 a pop last March, the stock now changes hands for under $150. 

Reasons for this weakness include a slowing of growth at its streaming platform. Last November, Disney+ announced it had added 2.1 million subscribers in Q4 of its financial year. That’s down sharply from the 12.6 million in the previous three months.

But should investors really be surprised? Having (unintentionally) timed the launch of Disney+ perfectly to coincide with Covid-19 lockdowns, it was surely inevitable that things would slow.

Yes, a few poorly-received recent Marvel and Star Wars shows may be another factor. However, we can’t deny just how lucrative this intellectual property is and, importantly, will remain. Pixar is another jewel.

For me however, its the theme parks that make Disney a buy. If the pandemic really is to end in 2022, visitor numbers should begin to rise again as international travel bounces back. Sure, a bet on Cineworld could be more lucrative in the event of a short ‘squeeze’. However, I suspect the ride with Disney stock will be considerably less hair-raising.

High-risk stock

In sum, I’d much rather add Mickey and Co to my portfolio when markets reopen on Monday. As nice as it would have been to capture the recent jump on Cineworld shares, I’m still aiming my barge pole at the company.

This is a binary bet as I see it and the prospects for long-term investors, as opposed to nimble traders, aren’t great. 

Full-year numbers — including an update on its precarious financial position — will arrive in mid-March. 

The post Cineworld shares are flying but I think this stock is a better recovery play appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Winning AIM stock

Headquartered in Israel but with offices around the world, Tremor is a leader in Video and Connected TV advertising. Its platform helps clients, such as Amazon and Disney, “reach relevant audiences and publishers to maximize yield on their digital advertising inventory“. As one might suspect, the gradual recovery in economic conditions and business confidence over the last year or so has been a boon to the company.

This month’s results — covering trading in the first half of 2021 — showed a company in rude health. Revenue more than doubled to $152.4m. In addition to being completely organic, CEO Ofer Druker said that this growth was “one of the highest” across Tremor’s peer group. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed a staggering 3,545% to $64.8m year-on-year.

Another reason for the share price rise is the recent listing on NASDAQ (home of tech titans such as Alphabet and Facebook). Having a joint listing in the US should allow is to raise more money in the future to help fund acquisitions as well as provide working capital. Almost $129m was raised from the IPO in June.

Can it continue?

Unsurprisingly, Tremor’s management is bullish on the company’s outlook. It now expects Q3 revenue (excluding traffic acquisition costs) of “at least” $75m and adjusted earnings of around $37m. However, this is dependent on no “major Covid-19-related setbacks that may cause economic conditions to deteriorate or otherwise significantly reduce advertiser demand“. To be fair, I think this would apply to most listed firms. 

But isn’t this encouraging guidance already reflected in the price? Well, 26 times earnings is what I’d need to pay for the stock right now. That’s high, although arguably not excessive compared to elsewhere in the market. Knowing that the company looks very financially secure helps takes the sting out (TRMR has zero debt and had $275.5m in cash at the start of July). I don’t mind paying up for stocks as long as they look sufficiently resilient. 

However, it’s worth me being aware of a few things. For one, the Tremor share price has had some very volatile days. Last Friday, for example, it was down 4%. In the past, it’s had a few days where it has climbed and fallen by double-digit percentages. A low ‘free float’ might be partly responsible.

While not a risk as such, it’s also worth stating that there’s no dividend stream. So, if I were hunting for income, I’d need to look elsewhere. 

Tempting buy

Tremor International is a fine example of how AIM stocks can provide incredible returns over a short period. And while buying one year ago would clearly have been a far better thing to do, I must say that I still like the look of the shares now.

As long as I maintain a diversified portfolio (somewhat mandatory for those fishing for winners in the junior market), I’d be comfortable picking up some TRMR when markets reopen tomorrow.

The post This AIM stock has exploded. Is there more to come? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’ll highlight three reasons why next month might be a good one for the stock and its long-suffering owners.

The Cineworld share price: ready to rally?

First, you have the release of the long-awaited James Bond film ‘No Time to Die’. Postponed several times due to the Covid-19 crisis, the new movie will be hitting the silver screen on 30 September.

Importantly, the latest Bond installment isn’t arriving on streaming services at the same time. This is in contrast to the tactic recently used by Disney for films such as Cruella and Black Widow. Such is the popularity of the franchise, I suspect the restriction could see previously nervous fans flock to screenings.

Assuming these experiences are positive, this could mark an inflection point in Cineworld’s fortunes and trading can get back to normal. 

There are other, perhaps more speculative reasons for thinking the Cineworld share price might climb. Any upward momentum could be boosted by a ‘short squeeze’, for example. As things stand, the company remains the most shorted stock on the market.

Third, I also wonder if the end of school holidays (and the advent of colder weather) is another potential catalyst for improved business, since families will be looking for fuss-free things to do at the weekend again. Sensing this, the market could send the Cineworld shares higher in advance.

So, am I a buyer?

In short, no. It’s possible the above may not be enough to truly arrest the downward trajectory of the Cineworld share price. Moreover, I think the company faces a number of challenges beyond September.

#1) No control. Cineworld’s ability to revive itself ultimately depends on something it can’t control, namely the popularity of the movies it shows. I believe the Bond movie will be a huge money-maker, whatever the reviews. But how many other films look like nailed-on blockbusters? A few, but not many, I submit.

#2) Foggy outlook. I’m just not optimistic about the future of cinemas in general. Yes, they’re a relatively inexpensive treat and I don’t think they’ll disappear anytime soon, despite the popularity of Disney+, Netflix and Amazon Prime. However, nor do I expect the sort of growth over the next few years that other listed companies may be able to achieve. With limited capital at my disposal, I’m looking for stocks that will shoot the lights out, not amble along.

#3) Disturbing debt burden. Even if next month does mark a turning point in the Cineworld share price, all that debt is hard to ignore. The potential for the company to list in the US might help, but it does seem a rather desperate move (and might not actually happen). Why would I take on this risk when there are many financially sound UK stocks for me to buy instead?

#4) Traders selling up. Having commanded a much higher price earlier in 2021, I think it’s fair to say that at least some traders are still underwater. As such, any sufficiently strong rise in the Cineworld share price might be sold into. This, in turn, could impede the recovery. Investors will probably need to be patient.

The post 3 reasons I think the Cineworld share price could rally in September appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cineworld share price: no mercy

Actually, ‘lost momentum’ is putting it kindly. By yesterday’s close, the Cineworld share price had plunged 33% in just one month.

One reason is a simple lack of demand at its sites, at least relative to how things used to be. Not that this is all that surprising. Despite screens being open for some time now, the movie slate has remained fairly subdued. Blockbuster Fast & Furious 9 is perhaps the only film that’s really brought people back. Production of some nailed-on successes, like Mission Impossible 7, has also been delayed. Again. 

On top of this, the once-mighty mid-cap has all that debt creaking away on the balance sheet in the background. Even the rise and rise of meme stock and industry peer AMC Entertainment across the pond can’t revive the Cineworld share price by association.

However, it’s not necessarily all doom and gloom. The new James Bond film should provide a welcome boost to revenue when it finally arrives in September. A sequel to Top Gun should hit screens in November.

One might also say that the ongoing heavy shorting of Cineworld shares may work in the favour of those already invested if the company is able to surprise on the upside. Should this happen, a ‘short squeeze’ would be very likely, further boosting the Cineworld share price.

The key word there is ‘surprise’. Right now, I’m not exactly optimistic. 

A better bet?

If I were looking to invest in an eventual rebound in cinema visits, there is another option available to me on the London market: 33-site independent cinema group Everyman Media (LSE: EMAN).

In contrast to the Cineworld share price, Everyman’s shares have also held up fairly well recently. They’ve traded around the 150p mark since March this year and are up almost 40% since July 2020. The fact that the firm doesn’t appear to be in quite the same level of distress as its larger peer might be a reason. 

On the flip side, it’s clear that Everyman still faces similar hurdles to Cineworld. The popularity of streaming services offered by Amazon and Disney shows no signs of abating. In fact, a rise in infection levels could force people back to their TVs in the evenings. The good weather we’re experiencing is also pushing people outdoors, making a trip to a dark, enclosed space less attractive.

A further risk to owning Everyman stock is the firm’s small-cap status. As a general rule, minnows tend to be more volatile than large-cap stocks. This is especially true for stocks with a small free float (the percentage of shares available on the market). At 43%, this is very much the case with Everyman.

Horror show

Faced with a choice, I’d probably be more inclined to buy Everyman stock at the current time. Even so, I can’t help thinking there are far less frightening destinations for my cash right now. Undervalued or not, Cineworld remains in my ‘too scary’ pile. 

The post The Cineworld share price is down 33% in one month! Should I buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why is the Netflix share price falling?

It all seems to be down to the growth in subscribers so far in 2021. Although revenue of $7.16bn beat expectations, the market was expecting around 6.25 million new accounts to have been opened between January and March. The figure released last night fell far short of that at 3.98 million. 

To make matters worse, Netflix expects only 1 million new account openings for the next quarter of its financial year. Again, this does not compare well to the near-5 million predicted by analysts. 

In its defence, Netflix said that the recent slowdown was likely due to the lack of new shows on the service. This seems fair. The pandemic succeeded in halting production for many companies and movie studios in 2020 (including FTSE 250 broadcaster ITV).

Will the rout continue?

It’s hard to say if this will continue. There are certainly reasons for thinking this fall in the Netflix share price could prove temporary. The company remains the clear market leader. Almost 208 million people already hold accounts. Moreover, the release of new seasons of popular shows later this year could lead to a better set of numbers. 

One must also put things in context. Multiple coronavirus-related lockdowns have been a boon to the company. Almost 16 million new subscribers signed up for the service in Q1 2020, a large proportion of them in Asia. As a consequence, the Netflix share price is up 65% since the crash. Seen in this light, some slowing of momentum (and profit-taking) was inevitable.

Then again, there are reasons to be bearish. The successful rollout of vaccines and gradual return to normality means people will be less inclined to stay in over the rest of 2021. Even if they do, Netflix continues to face strong competition from the likes of Disney+ and Amazon Prime. There’s also something to be said for being wary of stock market valuations right now, particularly in the US. 

Foolish options

Whether the fall in the Netflix share price represents an opportunity or not depends on an individual’s time horizon and risk tolerance, in my view. In the near term, there’s no way of knowing whether things will get worse. Over a longer time frame, the odds of making money should improve.

That said, I won’t be buying the shares today. Instead, I’d be more likely to buy a fund that owns a slice of Netflix in addition to other stocks. The Polar Capital Technology Trust or Baillie Gifford American are examples. There’s no guarantee that the value of these funds won’t fall as well. However, the fact that my cash is invested in multiple companies rather than just one means I should be able to sleep more soundly.

Netflix has been one of the best investments in recent times. I don’t doubt it still has the potential to make money for those buying now. With a market cap close to $250bn, however, expectations of future returns must be tempered. The time for me to throw everything at the stock was 10 years ago.  

The post The Netflix share price is falling. Should I buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares of ITV. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool UK has recommended ITV and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As good as this performance is for those who had the courage to invest, I’m more likely to buy a related stock from the US market. Before revealing its identity, I’ll briefly recap on why I’m not tempted by Cineworld. 

Cineworld share price: too much too soon?

First and foremost, the company remains heavily indebted and dependent on fresh liquidity to keep going. It’s somewhat inevitable that many traders are betting the Cineworld share price will fall in the months ahead. 

Second, the movie schedule continues to be impacted by the pandemic. Since studios need to be confident that they can make a decent return on their money, I wouldn’t be shocked if more delays were announced.

Third, there’s no guarantee moviegoers will rush back when cinemas reopen. This may be due to an ongoing psychological wound left by coronavirus or the simple desire to be outdoors when good weather arrives.

To be fair, Cineworld has some plus points too. Consumers are craving a return to much-loved activities and it could benefit even more from people being unable to go on holiday for much of 2021.  

As an investor, however, I need to be sure that my money goes into high-quality, multiple-product companies more likely to survive the coronavirus storm. This brings me to a far less risky alternative in the entertainment space.  

This US stock looks like a better bet

At £333bn, US behemoth Disney (NYSE: DIS) towers above Cineworld in size. But it’s not just its sheer market clout that makes this a more defensive pick. Disney owns some of the biggest brands/franchises going, including Star Wars and Marvel as well as companies such as Pixar. It has theme parks, cruise liners and exposure to sports via ESPN. It earns stacks of cash from merchandising every year. 

I’d say Cineworld needs Disney a whole lot more than Disney needs Cineworld. The US giant can easily distribute its own films and TV shows via its streaming service. Boosted by people being forced to stay indoors due to lockdowns, it now has 95 million subscribers to Disney+. It expects up to 260 million by 2024.

No sure thing

Naturally, there are still challenges ahead. Disneyland and co remain closed due to the coronavirus. Even once they are permitted to open, restrictions on the number of visitors are possible. If not, social distancing measures look inevitable, which doesn’t exactly sit well with the ‘magical’ atmosphere it wants to create. In addition to this, departures of its cruise ships remain suspended. Naturally, Disney will also continue to face stiff competition for eyeballs from the likes of Netflix and Amazon.

Having recently hit a record high, one might reasonably argue that a lot of optimism is already in Disney’s share price too. A twist in the coronavirus tale could put paid to that. Due to the size difference, the Cineworld share price is theoretically more likely to double in value in the near future than Disney.

In spite of all this, I know which I’d feel more comfortable owning within my Stocks and Shares ISA. While Cineworld is on life support, the Mouse is in rude health. 

The post I’d ignore the Cineworld share price and buy this US stock for my ISA instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Contrarian UK stock

Pre-pandemic, shares in Premier Inn owner Whitbread (LSE: WTB) struck me as being rather too expensive. While it remains the most popular hotel brand in the UK, I still think last year’s sale of Costa Coffee to Coca-Cola was a mistake. It did, after all, offer the company some earnings diversification in better times. 

Now that the share price has been hammered back to levels not seen for roughly seven years, however, the probability of making money from this top-tier UK stock has surely increased markedly.

My chief reason for thinking this is that Whitbread has acted fast to tap investors for new funds. A £1bn, deeply-discounted rights issue back in May provided the company with cash to cover outflows while its hotels remained shut.

More importantly, this money should also allow Whitbread the financial firepower to increase its market share by taking advantage of “enhanced structural opportunities” in both the UK and Germany. In other words, Whitbread is ‘buying the dip’. It’s intending to purchase assets on the cheap to reap the rewards later down the line.

Of course, the recovery for hoteliers is unlikely to be swift in the absence of a vaccine. Then again, I don’t think this should trouble Fools too much. The philosophy we endorse is the same as that of many brilliant investors such as Warren Buffett and the UK’s own Terry Smith: buy great shares at a reasonable price and sit back for value to be recognised. 

Whitbread certainly isn’t the best business I’ve ever come across. Then again, the value on offer suggests those investors looking for FTSE 100 bargains could do worse than run their slide rules over it.

Priced-in?

I fortuitously sold my holding in broadcaster ITV (LSE: ITV) just before March’s market crash. I’ve now begun rebuilding my position.

Like Whitbread, the £2.5bn cap has its problems — the ongoing reduction in advertising revenue being one example. Although some of this is temporary and coronavirus-related, many businesses are now opting to use sites such as Facebook to promote their products and services.

Another issue has been ITV’s ongoing struggle for viewers with US streaming services such as Netflix, Amazon Prime and Disney+. There’s no sign that this will get any easier going forward.

On a more optimistic note, ITV has form among UK stocks when it comes to bouncing back from cyclical setbacks. At the height of the last financial crisis, for example, shares fell as low as 25p each. Once the storm had passed, they climbed as high as 250p.

So long as the company’s Studios arm can get back to work, online revenue continues to grow and demand for its Britbox subscription service continues, I suspect (hope) history may repeat itself once the pandemic is truly over.

This is, of course, unless a deep-pocketed suitor decides to bid for the company beforehand. At only 64p per share, such an outcome wouldn’t surprise me. 

The post Looking for cheap UK stocks to buy after the market crash? I’d start here appeared first on The Twelfth Magpie.

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• Here’s how to invest £3,600 in UK shares to target a 7% dividend yield
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• With dividend yields averaging above 7%, are these 2 UK shares worth considering?

Paul Summers owns shares of ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Merlin Entertainments (LSE: MERL) presents one possible opportunity to profit from the growing middle class in countries such as China and Thailand, as well as developed countries such as Japan, South Korea and Singapore.

Merlin, the operator of theme parks and attractions such as Legoland, Madame Tussaud’s and the London Eye, has one of the key competitive advantages all investors should look for in a company: a strong moat to competitors entering the field. Due to the massive costs associated with developing theme parks and the difficulty in building a well-known brand, Merlin and leader-in-class Disney enjoy significant competitive advantages over newcomers to the field. Merlin has exploited this to achieve operating margins of 25% across the company, and margins over 30% at Legoland and Midway theme parks.

The growing wealth of the Asia Pacific region hasn’t escaped the notice of Merlin’s leadership, and the company is investing heavily in expanding its footprint there. In addition to over a dozen attractions operating in seven Asian countries, the company is opening Legoland parks in Japan and Korea in the next three years, and announced during President Xi’s visit that it will be moving forward with Legoland Shanghai and new Midway-branded theme parks tailored to the Chinese market.

The expansion of Legoland parks in Asia is an astute move as Lego, the privately held Danish company, has revealed sales in Asia writ large have seen double-digit increases year on year and Chinese sales have increased 50% two years running. With the 30%+ margins Merlin extracts out of existing Legoland parks, investors should be very pleased with these planned expansions.

For fiscal year 2014 Merlin recorded 13% of group revenue coming from Asia but the company’s long-term goal is to increase this number to a third. While the stock trades at a relatively pricey  25.71 price-to-earnings ratio, the company is profitable year after year, with EBITDA of £123m on £544m of revenue in the first half of 2015, and pays a small dividend of 1.57%.

Although share prices for Merlin are down 10% from their highs in May, due to one-off hits to profits stemming from a serious roller-coaster accident at Alton Towers and subsequent lowered attendance, the stock remains expensive. With proven profitability and strong prospects in growing Asian markets, I see Merlin as a company with strong upside potential and should be watched closely as a buying opportunity if its shares suffer during a future dip in price.

The post Is Merlin Entertainments plc Your Way To Cash In On Asia’s Increasingly Wealthy Consumers? appeared first on The Twelfth Magpie.

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