Stock Super Pick for December 2008

Hello, boys and girls. So far TFP's picks haven't turned out so great. Yes, judgement should be withheld until after the 2-year timeframe I originally set for them, but they were still a little disappointing, right? Well, fear not. Your Uncle Fleabagger (disclosure: not really your uncle) has a Super Pick this month.

Buy Marvel Entertainment (MVL). It is a doozie. I admit, it doesn't look like much if you look at the income statement, balance sheet, valuation, etc. That's as may be. What you don't see when you look at the numbers is that they've been changing their business model to generate less of their profits up front in order to generate greater profits overall.

Marvel is a comic book company that now has expanded into movies and toys. They used to just license their characters out to movie studios, which in turn would profit handsomely from enormous world box office receipts in exchange for chump change ("Spider Man" and sequels), or, what may be worse, the studio would hire some idiot writers/directors to create their "vision" of the character and almost ruin the franchise (Ang Lee's "Hulk"). Now, they are making their movies in-house, taking on more of the financial risk, but getting more of the financial reward (Iron Man). This and the clustered timing of the release of their movies make the earnings and cash flow choppier than those of most companies, but will probably pay off handsomely in the long run.

And let's be serious. Don't you want to own the company making movies like "Iron Man"? I know, "Thor" isn't nearly as exciting (for most of you), and they're even coming out with "Ant Man," but you might be surprised. Another encouraging step is the cross-promotion of their "stingers" - the short clips at the end of their movies. This should help their weaker franchises by letting them ride the coattails of their stronger ones, like Iron Man.

I'm recommending MVL anywhere under $31 (it closed at $29.45 Friday), and you might be able to write (that is, sell) covered Mar 09 call options with a $35 strike (MVLCG) for $2 apiece (last bid 1.90 on Friday), which would be like 7% cash back, capping your upside potential at about 19% (not counting the premium) for the next 4 months.