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Lions Gate: Emerging Craze for 'The Hunger Games' Drives a Parabolic Stock Move


Wall Street goes gaga over 'The Hunger Games' as advance ticket sales go through the roof.

If you're part of the cadre of market observers that thinks Apple's (AAPL) gone up too much this year, then please, don't look at what's been going on with the "Hunger Games Trade" -- a.k.a. Lions Gate Entertainment (LGF).

With today's 5% rally up to $13.52, Lions Gate is now up a whopping 63% for the year, making it one of the best-performing stocks in the market.

For those new to the adventure, Lions Gate is riding a wave of momentum driven by the upcoming release of The Hunger Games, the first in a series of four films based upon a blockbuster trilogy of dystopian teen sci-fi novels.

As Wall Street has gotten onboard with this pop-culture phenomena -- backed by the sale of over 20 million books -- the bulls have gotten behind the stock big time.

Here's what I wrote back on January 23:

Now, the stock is going up because there is a closing disconnect between the target market's (mostly teenagers and young adults) interest in the film, and Wall Street's awareness of such. One thing that could really close that gap, and send the stock even higher, is advance ticket sales for The Hunger Games, which should be huge upon its February 22 release. That would lock in a huge opening weekend. (See: Lions Gate Rising on 'Hunger Games' Interest)

This was a rare moment of clairvoyance for me, as this scenario played out to a T.

Yesterday, Fandango said that first-day advance ticket sales for The Hunger Games broke the record set by Twilight: Eclipse. And that means that expectations for the box office tally are skyrocketing, which of course, means more money in the cash register for Lions Gate.

Of course, the big question is, what do we do with Lions Gate stock now that it's gone through the roof?

In my irrationally bullish moments, I imagine cash flow from the four Hunger Games films surpassing Lions Gates' entire current enterprise value -- implying that by buying right here, right now, I'm getting the rest of the business, including one more Twilight film, for free.

So even I find it difficult to be buying up here, even though every dip in the stock seems to get bought aggressively.

However, I'm not even considering selling any of my current position, which consists of a chunk of common stock, and a short position in March-dated put options.

Here's why.

First of all, I've made multiple sales (with the benefit of 20/20 hindsight, too many...) during the big run-up, so I don't have that much money at risk.

Secondly, I remember the action in Activision (ATVI) during 2006 and 2007. (See: For Lions Gate, 'The Hunger Games' Is 'Guitar Hero' All Over Again)

The Guitar Hero rally of late 2006, which subsequently fed into the Call of Duty 4: Modern Warfare rally of 2007, was far stronger than even I imagined, and I was psychotically bullish on Guitar Hero.

I got off that ride too soon, and I don't want to make that mistake again.

So by holding onto my Lions Gate position, I'm rolling the dice and betting that this mania will act like many others in that it will last far longer than may seem reasonable.

This isn't exact science -- I used the phrase "rolling the dice" for a reason.

I'll close with this: The action in Lions Gate is teaching a big, big investing lesson that I hope you heed.

There is an awful lot of money to be made in the gaps between Wall Street and pop culture -- especially for those of you that have teens and young adults in your lives.

Why? Because young people follow trends, and that means dollars moving in bunches.

In fact, if you're not aware of what your kids are buying, watching, and playing, it's time to ask a few questions.

You'll learn more about them, and maybe you'll get a few research ideas as well.

Twitter: @MichaelComeau

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Position in LGF,AAPL
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