Entertaining and Investor Friendly

 | Oct 03, 2013 | 1:30 PM EDT  | Comments
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Most folks like to be entertained. That's why the entertainment industry -- from highbrow opera to lowbrow (well, lowbrow is in the eye of the beholder) -- is so large, varied and appealing.

The industry is appealing not just to viewers, but to investors. There is plenty of money to be made by keeping people entertained, laughing, watching.

One such company, the Madison Square Garden Co. (MSG) is named after the most famous arena in the world. Of course, it owns the fabled Garden, but it also owns the New York Knicks, New York Rangers and MGS Networks.

It is also a major concert and special event producer at such venues as Radio City Music Hall, the Garden and The Chicago Theatre. This is a company with a great stable of brand names, which has real value when people are looking for entertainment.

The company's business acumen also has value. Peter Lynch, the legendary mutual fund manager, wrote a book about how to invest, One Up on Wall Street. Years ago I computerized his strategy -- as well as the strategies of other great investors -- so I and others could scrutinize companies in the same way these investors did.

My Lynch-based strategy is clapping loudly for the Garden's financial performance. In particular, it likes how well-priced the stock is, as evidenced by P/E/G, which is price-to-earnings relative to growth. That is a measure of how much an investor is paying for growth. The Garden's P/E/G is 0.95, just below the 1.0 maximum allowed. The company also sports an extremely low level of debt. You don't have to be a high-stepping Rockette (the Rockettes are also a Garden property) to see how smoothly this company is operating.

Carmike Cinemas (CKEC) is also in the entertainment business, as the operator of 245 movie theaters with 2,476 screens in 35 states. The company helps shield itself from competitive pressure by focusing on small-to mid-sized communities. This company is favored by another of my guru strategies, that of James O'Shaughnessy. It likes the company's market cap ($500 million), five years of improving earnings per share, and a very favorable price-to-sales ratio of 0.87 (1.5 is the max allowed).

For companies that pass these criteria, the strategy picks the top 50, based on their relative strength (which is a measure of how well as a stock has performed in the past year compared to the overall market). With a relative strength rating of 88, Carmike makes it into the elite group of 50 companies and earns a strong recommendation from the O'Shaughnessy strategy.

International Speedway (ISCA) provides a different form of entertainment than either Madison Square Garden or Carmike Cinemas. This company operates several motorsports facilities including Daytona, Talladega and Watkins Glen. With NASCAR and other races, this company is nicely positioned in the sweet spot of the auto racing world. This company is another favorite of my Lynch strategy, with a P/E/G of 0.92 and low debt.

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