The market seems to be valuing many of the consumer discretionary stocks lower as participants suddenly remember the Europe situation, and begin to recognize the excesses of the first quarter bull market.

I will keep buying up shares of Activision (ATVI) as it drops below $12. It has been hovering near $12 since Monday. The market is incorrectly valuing how much money will come from Diablo 3 and the second Black Ops later this year. I had not anticipated how successful Skylanders would be. All this extra upside now adds encouragement to my original long case, thus, I am adding to the position.

Real D (RLD) is trading too low again. As its theaters approach maximum capacity in the U.S., its capital expenditures will begin decreasing and free cash flow will begin to increase. Its rate of capital expenditure has already begun to slow. Reflexivity is becoming less of a concern here because the share issuance is very little at these prices. They have been slowly wittling away cash balances, but these should begin to rise towards the end of 2012, when more big blockbusters come out.
My free cash is very limited right now, so I would wait until this becomes a better bargain. If RealD hits $10 a share, I would buy.

Imax will probably trade higher later in the year and later into 2012. Management is continually reassessing their maximum target number of screens – it currently sits at 1550, which is much higher than most analyst estimates – so these reassessments will keep raising the hopes for the future.
The bias is still negative, as analysts use last year’s income – depressed from the bad (horrible) movie slate – to value the company. The assumption is that IMAX is overvalued. However, with record numbers from Avengers, and an unexpected success with Hunger Games, the company is just beginning its run for this year. Later in the year, the Dark Knight will do extremely well, and hopefully Gelfond will recognize this in time to give it a longer run time (3 weeks or more). He is getting better about extending the run-period for the blockbusters and downplaying the movies bound to be less successful. Prometheus remains a big question mark, so my view is skeptical. Men In Black will likely do better. The Hobbit will do extremely well.
In a typical year for Imax, more than 60% of the revenues come from the top 5 movies. However, in this year, I expect the majority of revenue to come from the year’s 3 super-block busters – The Avengers, The Dark Knight, and The Hobbit.
Next year, there is another strong movie slate, with Star Trek and Man of Steel to start it off.
So I am still long. I had sold off half of my postion at $24.50 a share. The current price is below, but not enough to get me salivating again. As I said earlier, my free cash to invest is pretty low right now. I may reconsider as IMAX drops below $21.

Still, my largest position is in CJES. The drop in oil was expected, and the drop in the commodity is depressing CJES even after its announcement of earnings. I partially regret not buying as shares dipped into $16 territory again recently, but my long position is so large that I am beginning to question my own approach to risk management.

HAL remains a relatively minor position in the portfolio. The Macondo issue may prove to be bigger than I had initially realized – BP is aggressively pursuing Halliburton to push of blame for the spill. I don’t think they will have good grounds to force HAL to take on cleanup costs, but they may have grounds to pursue a suit related to a bad cement job. I do think, however, it is probable that the amount of the claims will be insubstantial compared to gigantic income of the company in the wake of the shale boom. I still believe that Halliburton remains the best positioned to take advantage of international shales. Others may disagree and point to Schlumberger as the leader internationally, and they may well be correct. However, my thesis rests on the valuation difference between Schlumberger and Halliburton remains so vast that it makes up for the cost of BP’s claims and the first-mover advantage that Schlumberger has.

 

Disclosure: long ATVI, RLD, IMAX, CJES, HAL