Investing isn’t an either-or proposition, not even when it comes to the different schools of growth stocks versus value stocks. Some companies just give you the best of both worlds.
We asked three top Motley Fool contributors to highlight a stock they believe fits neatly into both camps. Read on to discover why NetEase (NASDAQ:NTES), Qualcomm (NASDAQ:QCOM), and AMC Entertainment (NYSE:AMC) could very well school investors on how investing doesn’t have to be black or white.
This video-gaming play is worth a closer look
Dan Caplinger (NetEase): The video game industry has become increasingly important in the entertainment arena, but few U.S. investors properly appreciate just how big of a deal video gaming is in the Far East. Chinese video gaming giant NetEase has done a phenomenal job of producing amazing growth, yet most investors fail to give it full credit for its efforts.
In its most recent quarter, NetEase managed to deliver top-line growth of 72% in local-currency terms, and adjusted net income soared by 63%, dramatically surpassing shareholder expectations. The company has worked to get greater penetration in the mobile gaming space and now gets almost three-quarters of its revenue from mobile. At the same time, other businesses, including its email and e-commerce unit, have contributed to NetEase’s overall growth, with sales gains whose rates rival those of the gaming unit.
NetEase has several paths to growth. Partnerships with other game-makers put NetEase in a position of being a vital gateway for international video gaming companies to tap the Chinese market, allowing NetEase to reap the rewards of being an intermediary. At the same time, the company has gone beyond China’s borders, seeking to launch games in other promising markets like Japan. Rising dividends have rewarded shareholders, yet the stock trades at only 20 times trailing earnings. For those looking for a combination of growth and value, NetEase is a promising play on the long-term success of video games.
Powering next-gen connectivity
Keith Noonan (Qualcomm): The market has soured on Qualcomm in 2017 because of the chipmaker’s legal disputes with Apple, patent issues in China, and the slowdown in the mobile market — with shares losing roughly 10% of their value year to date while the S&P 500 has gained more than 8% across the stretch. The company currently trade at less than 14 times forward earnings estimates, and its stock looks to present a rare combination of value and growth potential for investors who are willing to weather some uncertainty.
While recent stagnation in the mobile market and ongoing litigation are cause for some concern, Qualcomm has significant growth opportunities thanks to 5G and the Internet of Things (IoT). 5G is the next generation of wireless network technology, and it can be counted on to deliver a massive leap in download and upload speeds for mobile devices. Even more important, 5G will be the fabric that weaves together connected devices and sensors to facilitate the much vaunted Internet of Things revolution.
Beyond 5G modems and connectivity chips, Qualcomm also has the opportunity to ride IoT momentum with processors and other computing solutions, and the company reports that it’s already shipping more than a million chips a day for IoT-related devices. Its planned acquisition of NXP Semiconductors will also make the company the leader in chips for connected cars, one of the fastest-growing IoT segments, and is expected to provide significant sales and earnings momentum.
Adding to Qualcomm’s value profile, the stock also pays a hefty dividend — with its yield currently sitting at roughly 3.9%. With its low earnings multiple, avenues to long-term growth, and sizable returned income component, the stock looks like a worthy portfolio addition.
Put its name up in lights
Rich Duprey (AMC Entertainment): Value investors looking for a growth stock might just find the ticket in AMC Entertainment, the world’s biggest movie theater operator that’s capitalizing on the blockbuster films coming out of Hollywood, all the while offering a discounted stock price. Same thing for growth investors looking to buy into a value-oriented stock.
Shares of AMC have lost 35% of their value since hitting $35 a stub at the end of last year over concern that premium video on demand will draw moviegoers away from theaters, hurting revenues. There is some reason to the fear as Tinseltown has produced a string of poorly received films while ticket prices have climbed higher. The cost of an average movie ticket is $8.84, making a night out a pricey proposition, particularly when you have mediocre fare on the big screen to choose from. The Memorial Day weekend box office was the worst since 1999. It’s easier to stay home and watch something on demand.
Some might even compare the fate of films to that of newspapers, but the movie industry isn’t the same thing as the newspaper business, even if both are suffering from the way people consume their entertainment and news. With newspapers, the information you’re getting is stale the minute you open one, and the internet allows for 24/7 updates.
With movies, while the ability to achieve instant gratification by watching what you want when you want to has similarities to the plight of papers, you still get something of an “experience” by going to the theater. There’s something to be said for seeing a movie on a huge screen as opposed to your television, or worse, laptop (and don’t even bring smartphones into the equation).
All of this means AMC Entertainment’s beaten-down stock is attractive. It goes for a market-like 24 times earnings, but just 18 times next year’s estimates, while trading at just a fraction of its revenues. The movie mogul also pays an annual dividend of $0.80 per share that’s currently yielding a tasty 3.6%. That allows investors to get paid for owning the stock while waiting for the next installments of Star Wars, Transformers, and more.
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