For Lions Gate, 'The Hunger Games' Is 'Guitar Hero' All Over Again
Lions Gate reported lousy third-quarter earnings, creating a buying opportunity ahead of 'The Hunger Games.'
Steve Jobs use to talk about Apple (AAPL) as being at the intersection of liberal arts and technology.
Well on Wall Street, occasionally, a company will find itself at the intersection of pop culture and commerce -- with enormously profitable implications for investors.
So let me tell you a story.
Late September, my sister began torturing me to read The Hunger Games. Basically, her nagging got me to the point where it was easier to read the books than to keep listening to her talk about how great they were.
So I read them and immediately thought, "This is gonna be huge!" Little did I know that The Hunger Games was already a blockbuster book franchise with sales well into the millions at that time.
If you're not familiar, The Hunger Games is a teen sci-fi book triology set in a dystopian future where poor kids are pitted against each other in battles to the death.
Yes, The Hunger Games definitely leans toward the ultra-violent, but that hasn't stopped the series from tearing up the charts. I don't know, maybe the love triangle's helping?
So one day, I went to Google and typed in "Hunger Games movie," discovering that Lions Gate (LGF) would be producing the films. I took down a slug of call options to bet on what I believed would easily be a new mega-franchise, given that the sun had recently set on Harry Potter, and that Twilight was set to wind down. That trade was far smaller than it should have been, and I've done some buying and selling on the way up, but overall, it has been the best trade of my life on a percentage basis..
My confidence was bolstered after my November trip to the Fifth Avenue Apple Store to pick up my iPhone 4S. A girl behind me was reading The Hunger Games, and I asked her how she liked it. Almost before she answered, three other people on the line started talking about how much they loved the books, and one guy even busted out his HP TouchPad to play the teaser trailer.
All this time, interest in The Hunger Games films has been absolutely skyrocketing.
Visitors to EntertainmentWeekly.com rated The Hunger Games as the most anticipated movie of 2012.
In MTV's Movie Brawl, an online tournament to determine 2012's most-anticipated movie, The Hunger Games came in second, beating out the likes of The Dark Knight Rises, The Amazing Spiderman, and even the final Twilight movie.
The point is, you can't find a "Most Anticipated Movies of 2012" list without The Hunger Games being at the top of it -- yet adults have seemed conspiculously unaware of its likely popularity.
As I noted on the Buzz & Banter (click here for a free two-week trial) just after the open, I dipped in to buy more Lions Gate common stock following yesterday's lousy earnings report because, in my mind, Lions Gate is the momentum/fad trade for this part of the year.
Right now, Lions Gate is resembling Activision (ATVI) in 2006, when the Guitar Hero boom first really caught its stride in the mass market.
I distinctly remember going into Best Buy (BBY) stores every weekend, seeing crowds around Guitar Hero demo stations, and thinking "This is the stupidest thing I've ever seen."
Eventually, it dawned on me that somebody was making a boatload of money, and Activision turned out to be a huge home run as Guitar Hero regularly smashed Wall Street's sales estimates.
The same thing is happening right now with Lions Gate. Among teens and young adults, enthusiasm for The Hunger Games is positively deafening, and since adults -- a.k.a. Wall Street -- are coming around, the stock's turning into a momentum monster.
Looking forward, I see advance ticket sales for The Hunger Games, which will be released on February 22, as an underrated near-term catalyst for the stock. Even if Lions Gate doesn't release official sales numbers, I fully expect to see news reports of kids camping out to get tickets, and subsequently, I see Wall Street estimates for box-office receipts skyrocketing.
Now when it comes down to it, I don't really care about what The Hunger Games box-office numbers actually turn out to be -- I only care that anticipation builds because increasing optimism and awareness of the movie is bullish for the stock price in the near term.
In fact, since I plan on staying 1,000% flexible -- there's a distinct probability that I'll dump my whole position ahead of the opening weekend because of the chance of a blow-off top. Last September, I could rightfully claim that very few people were on to The Hunger Games story. But that's changed, based upon how quickly bought the dip today, and the fact that CNBC's Fast Money ran a segment that very clearly echoed the bull case I have been making. (See CNBC Puts "The Hunger Games Trade" Back on the Map)
Heck, with the crazy action happening in the stock today, a blow-off top could come sooner than we think. But until then, I'll be long and strong with Lions Gate.
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