Think entertainment when picking summer stocks

WASHINGTON — Summer is about beaches, barbecues and long rounds of golf. But even sun lovers must come indoors eventually, and one fund manager is betting that many will be spending the hazy days of summer in front of their Nintendo Wiis and Sony PlayStation 3s. Several new game consoles have come out over the past year, and now that kids are home from school, they will have time to play them, said Dan Ahrens, portfolio manager of the Ladenburg Thalmann Gaming and Casino Fund. But his favorites aren’t Tokyo-based Sony Corp. (SNE) or Nintendo Co. Ltd. (NTDOY) of Kyoto, Japan, shares of which have doubled in price over the past 12 months. Grapevine, Texas-based GameStop Corp. (GME), which sells games for many different systems, as well as the consoles themselves, is the company poised to do well during the summer months, Mr. Ahrens said. There are new games based on summer movies such as “Spider-Man 3” and “Fantastic Four: Rise of the Silver Surfer” which gamers are going to want, he said. What’s great about GameStop is that the company doesn’t depend on the success of a particular game or specific system, Mr. Ahrens said. “GameStop is independent; they’re Switzerland,’’ said Mr. Ahrens, whose 15-month-old fund has attracted about $3.5 million. The fund, which earlier this year selected Ladenburg Thalmann & Co. Inc. of New York to handle marketing and administration, will issue a new share class in July that brokers can sell to clients. Building on the idea that the summer brings more time for entertainment, another fund manager expects Burbank, Calif.-based Walt Disney Corp. (DIS) and Viacom Inc. (VIAB) of New York to benefit from summertime relaxation and travel. Michael Cuggino, president and portfolio manager of the $1.2 billion Permanent Portfolio Family of Funds in San Francisco, said that Disney “is hitting on all cylinders right now.” In addition to the solid performance of its theme parks, he likes Disney’s television operations because they are attracting high advertising rates, and its cable properties because they are producing hit shows. The company’s movie division represents a growth area for the company, Mr. Cuggino said, noting the success of “Pirates of the Caribbean: At World’s End” and a list of upcoming films, including the June 29 release of “Ratatouille,” a joint venture with Pixar Animation Studios Inc. of Emeryville, Calif., a Disney subsidiary. Disney is on the cutting edge of innovation and digitizing content, he said. “They are figuring out quicker and more in-depth how to monetize this.” Mr. Cuggino’s funds are invested in Disney and Viacom. He said that Viacom is undervalued and “is where Disney was a few years ago.” Summer also brings more travel, including road trips that will boost demand for gasoline in the United States. Traders already are worried that gasoline inventories are too low. “Look for companies producing gasoline, and stay away from those consuming it,” Mr. Cuggino said. As a whole, the summer usually is a weak time for the market, according to Harry Domash, publisher of Winning Investing, a stock and mutual fund advisory newsletter in Aptos, Calif. Typically, there isn’t much new money entering the market as there is at the beginning of the year, when investors contribute to their individual retirement accounts, he said. This summer, though, could buck the trend, Mr. Domash said. The stock market is being driven by private-equity companies’ buying up public companies, he said. In fact, around the world, firms have announced $930 billion of takeovers in the past 12 months, compared with $394 billion in deals the previous year, according to data compiled by New York-based Bloomberg LP. The stock market is likely to continue advancing as long as the buyouts continue, because the amount investors receive for their shares in the public companies generally is invested back into the market, and the market itself then has that many fewer shares, Mr. Domash said. Housing is one sector that could see additional declines this summer, Mr. Cuggino predicted. Summer usually would be a good time for the housing industry, as people often look for new homes while kids are out of school, he said. But this year, a threat of rising interest rates could contribute to “another sort of correction in the housing market,” Mr. Cuggino said. A weak housing market can spell bad news for other industries, too, such as those involved in home furnishings and accessories. “People won’t be buying home stuff if they’re not buying houses,” Mr. Cuggino said. Families may not be buying homes this summer, but they are likely to take vacations, including cruises. Two companies that Mr. Ahrens likes this summer are Carnival Corp. (CCL) and Royal Caribbean Cruises Ltd. (RCL), both in Miami. “Summer is very big for the cruise companies,” he said. There has been some negativity about these stocks because of fuel prices, but that issue already is priced into the stocks, Mr. Ahrens said. The companies have good bookings and have expanded in Europe and other parts of the world for their vacation destinations, making them less reliant on the Caribbean, he said. Given that Mr. Ahrens runs a casino and gaming fund, the manager naturally sees a couple of companies in this sector poised for growth this summer, including Las Vegas-based MGM Mirage (MGM) and Century Casinos Inc. (CNTY) of Colorado Springs, Colo. “Look for companies producing gasoline, and stay away from those consuming it.” Michael Cuggino President and portfolio manager Permanent Portfolio Family of Funds