These are testing times for investor confidence. A soaring gold price is a perfect indication of market nervousness right now, a steady slew of negative economic news from across the globe turbocharging demand for safe-haven assets in favour of riskier options like stocks.
But now’s not the time for share investors to retreat into their shells. Equity investment has long been proven an effective way to generate great returns over the long haul, irrespective of the sort of hair-raising bumps we are currently seeing. And the recent sell-off has seen some pretty terrific bargains emerge.
Take Cineworld Group (LSE: CINE), for instance. This particular FTSE 250 share’s lost a whopping 36% of its value from its 2019 tops of 320p struck in April, a descent which now leaves it trading on a bargain-basement forward P/E ratio of 7.9 times.
A slow start…
As a financial journalist, I find this fall to be somewhat baffling. And as a holder of the cinema operator’s stock, I find it most frustrating, as I’m sure you’d imagine. But I’m not massively concerned. In my eyes, Cineworld is still a great stock and one which I’m confident will create some splendid long-term returns.
Apart from being a victim of the broader dip in stock market sentiment in recent weeks, it’s also been on the back foot because of some disappointing trading numbers of late. Last week, it advised that, because of the unfavourable timing of major film releases in the first half, admission numbers dropped 14% in the period to 136m while revenues slipped 11% to $2.15bn.
As a consequence, pre-tax profit fell 13% year-on-year to $139.7m. Better news was that it kept its 2019 guidance frozen, the business encouraged by “a strong box office performance in July” and a strong slate of releases such as Star Wars: The Rise of Skywalker, Frozen 2 and Joker for the second half.
…but a bright future
And now we get to the crux why I believe Cineworld has a very bright future. Notwithstanding some occasional box office lumpiness owing to release timings, the immense pulling power of Hollywood’s most powerful film franchises (some of which I’ve mentioned above) mean that over the longer term profits remain on course to keep on surging.
Indeed, there’s a wealth of information to show the film industry is going from strength to strength and pulling the likes of Cineworld with it. Fresh financials from Disney released this week illustrate this point perfectly. The so-called House of Mouse reported that the immense success of Toy Story 4 means it’s the first studio in history to have released five movies in a single year which have grossed $1bn or more.
It’s no wonder then that City analysts expect another year of strong profits growth in 2019, this time by a solid 15%, and that it’ll keep lifting dividends too. Current forecasts are suggestive of a 17-US-cent ordinary dividend this year, one which yields an outstanding 6.6%. But this isn’t the only reason why the company’s a great income stock, of course. Cineworld also chucked out a special dividend of 20.27 cents in July.
There’s a lot to like about this cinema operator and I’m tempting to buy some more following those recent share price falls. I’m convinced it’s a share that will make me a fortune for my retirement.
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Royston Wild owns shares of Cineworld Group. The Motley Fool UK owns shares of and has recommended Walt Disney. The Motley Fool UK has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019