3 Media Stocks to Buy Now

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Summer time means blockbuster movies and high stakes for media companies. But what does it mean for your portfolio?

Any single movie won’t necessarily send media stocks rising or falling, especially not when we’re talking about companies on the scale of Disney (DIS), Sony (SNE) and others. But a string of hits or a series of flops can affect those stocks, so it’s important for investors to keep an eye on what those companies are doing. And savvy investors know to buy positions in the companies and studios that have strong lineups of future releases.

So, which of these stocks are in the best position right now? Here’s a look at three media stocks to buy.

Media Stocks to Buy: Disney (DIS)

When it comes to picking media stocks, investors should divide the world into to distinct camps: Disney (DIS) and not Disney.

Forgive the pun, but DIS is on fire thanks to Frozen. The animated film featured not just one princess, but two of them – the merchandising gods couldn’t have planned it better if they tried. If that weren’t enough to make the film a hit, an Oscar-winning song performed Idina Menzel was more than enough to keep audiences coming back. Frozen earned more than $1 billion at the worldwide box office, and was the No. 1 movie of 2013 in terms of international box office receipts.

Best Valued Stocks To Invest In Right Now

All of that success (the $1 billion, plus plenty more in merchandising) has helped fuel DIS stock. Shares of Disney have soared almost 12% this year, outperforming rivals such as Time Warner (TWX),  Viacom (VIAB) or 21st Century Fox (FOXA), none of which have moved significantly.

That’s all great, but Disney also has theme parks, which will do well in an improving economy. ESPN also continues to mint for the company’s rodent corporate overload. DIS stock may be at a 5-year high, but the shares remain attractively valued at a price-to-earnings multiple of 21.7, which isn’t too far removed from the average multiple of the S&P, which is 18.5. DIS stock is trading about 5 percent under its average 52-week price target of $88.54. Remember, though, that DIS has often been underestimated by Wall Street analysts and investing pundits … including this one.

DIS has got plenty of tricks up its sleeves, including a couple of small franchises like Star Wars and The Avengers. Buy DIS stock now before its price heads off to Never-Never Land.

Media Stocks to Buy: Time Warner (TWX)

As for other media stocks to buy, I would leery about investing in companies that are family businesses such 21st Century Fox (Murdoch) and Viacom (Redstones). The head honchos of these businesses Rupert Murdoch and Sumner Redstone have feuded with their children over the years. Whenever they meet their makers, an epic family fight over who controls the  company may follow and shareholders will get the shaft. That’s why I am recommending that people avoid these stocks and instead  buy Time Warner, which hasn’t been a family business since the days of Jack Warner.

Shares of the HBO and Warner Bros. parent company are trading at a multiple of 16, nearly a 5-year low. Wall Street analysts have a one-year price target on TWX of $75.84 – about 7% above where it recently traded. And that forecast might be conservative. First, HBO, which is practically a license to print money, is spreading its wings beyond the cable box onto new platforms, including the Xbox. Even people who “cut the cord” to their pay TV provider manage to keep up with the network’s show suchs as Game of Thrones through HBO (and a plethora of illegal services). Unfortunately, people don’t feel nearly as passionate about CNN, which continues to flounder.

The Warner Bros. film studios is cruising along nicely thanks to hits such as The LEGO Movie and Godzilla. The Tom Cruise, Emily Blunt sci-fi epic Edge of Tomorrow looked promising but posted a disappointing opening box office. Perhaps Warner’s film version of the hit Broadway musical Jersey Boys, set to be released later this summer, will fare better. Regardless, TWX has plenty of content that people will pay lots of money to license. Moreover, CEO Jeff Bewkes has gotten rid of businesses such as AOL (AOL) and Time, Inc. that were no longer good fits with the rest of the company.

Media Stocks to Buy: DreamWorks Animation (DWA)

Finally, I am going to go out on a limb with my third pick. DreamWorks Animation (DWA) has been hammered this year, especially after a disappointing box office for Mr. Peabody and Sherman, a movie that never found its target demographic. As a result, DWA stock is down 20% so far this year.

DWA’s biggest weakness is that it’s too dependent on hits. In fact, it had to lay off workers last year because the hits dried up. Other studios are attached to media monoliths that can count on other businesses to take up the slack when one of their films lays an egg at the box office. DWA stock doesn’t have that luxury. But there is some hope.

DWA’s next release, How to Train Your Dragon 2, which debuts next week, has gotten some rave reviews. Variety’s Peter Debruge gushed that the move was “Braver than ‘Brave,’ more fun than ‘Frozen’ and more emotionally satisfying than so many of its live-action counterparts.” If the moviegoers agree with Debruge,  DWA stock should get a boost, since three are two other “Dragon” films in the works.

Investing in DWA stock requires looking at the bigger picture. I don’t see how the independent studio can remain outside the clutches of a media monolith. The potential synergies from an acquisition are too compelling to resist. Perhaps Comcast (CMCSA) or even Viacom might take a stab at DWA. Regardless of who makes the move, Dreamworks won’t stay independent forever. DWA stock is worth a gamble for adventurous investors.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.