The final part of the Lord of the Rings trilogy hits theaters this coming week, and we offer two stocks that have an interest in the success of that film franchise. Bernie Schaeffer suggests looking at video game maker, Electronic Arts, while S&P’s The Outlook suggests accumulation of Time Warner, owner of New Line Cinema.
"Third quarter results at Time
Warner (TWX NYSE) benefited from higher cable subscriptions, ad
revenues and affiliate fees and wider margins on DVD sales. The concluding
episode of The Lord of The Rings trilogy is due from Time Warner’s New
Line Cinema subsidiary on December 17. New Line also produced Elf, which has done very well at the box office since
its recent release. In the meantime, Time Warner is making progress using its
free cash flow and sales of non-core assets to reduce debt. Our 12- month target
price of $19 is based on our discounted cash flow model and an analysis of the
price-to-free cash- flow multiple relative to peers. We advise accumulation of
the stock for capital appreciation."
"Electronic Arts (ERTS NASDAQ)
remains the interactive gaming software kingpin with such hit titles as The
Sims, SimCity, and Madden NFL," says Bernie Schaeffer in The Option Advisor. "The company also has
licensing rights to Lord of the Rings, Harry Potter, and James
Bond. In October, the firm reported earnings that smashed the Street
estimate by six cents per share and boosted its fiscal 2004 outlook. What's
more, the equity has outperformed the Nasdaq since March 2000. Yet investors
continue to harbor doubts. ERTS has also begun to see a heavy accumulation of
puts at its December 40 and 42.50 strikes, which should lend added support. In
addition, short interest jumped roughly six percent over the most recent
reporting period to 11.9 million shares. For options traders, we recommend
buying the March 40 calls on ERTS."
