Super Future for Marvel (MVL)

Sometimes you invest in companies because they're cheap ... and sometimes you invest in companies because, though fairly valued, you think their future is brighter than the market believes.

In the case of Marvel (MVL), I've bought shares for both reasons. I originally picked up shares in the comic book, toy and movie company a couple years ago in the teens, and though it dropped at one point down to $13 or so it was certainly a value proposition when I first got involved.

Now, it's less of a bargain -- but the future is significantly brighter ... and I bought a few more shares this morning at $28.38, upping my average cost per share to the low $20s.

Why now?

I had been hoping for a dip in the price, which hasn't happened (quite the opposite) ... though MVL remains a fairly small position for me even after this purchase, so another buy in the future is certainly possible.

And it would have been more prescient to make this purchase back in the summer when the price was a good 30% lower -- but I didn't.

What has changed since then is that Marvel has moved further past the lump caused by its transition to a new toy licensing deal (they make a lot of their money from licensing characters for toys), and the film slate for the next couple years has been firmed up, with very tantalizing possibilities for both toy and movie revenues going forward.

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The first thing, of course, is the next Spiderman movie -- Spiderman 3, which according to the previews looks pretty dark and impressive, and has the potential to be a mega blockbuster like its predecessors. Of course, this is just a small part of Marvel revenues, since the Spiderman deal was signed when the company was very weak, many years ago, and they only get a relatively small royalty from the movie itself ... though Spiderman toys are always big sellers, and this should help that further.

More important, in my view, is the fact that it looks like Marvel is really going to have a great product on its hands with their first self-produced movie. In 2008, they'll be releasing the first of several films that are produced with their own line of credit, and for which they'll make most of the money (and take on most of the risk -- I wrote extensively about this last February), unlike the relatively risk-free royalty deals they've had in the past for the X-Men, Hulk, Men in Black, Spiderman and other films in recent years.

So a lot of the company's fortunes are riding on making these self-produced films succeed -- and until recently, it was pretty unclear exactly what films would be made, and how promising they would look.

Now, it looks like the first movie, at least, should be a great one -- Marvel has decided to open its film slate with Iron Man, the story of alcoholic military-industrialist gazillionaire Tony Stark, who designs and builds a suit of armor that (eventually) turns him into a superhero. A great character with some depth, and potential for some seriously fun special effects.

But knowing that isn't enough -- in Hollywood it's all about the talent. And that's where Marvel's production head Avi Arad has really done his job.

Starring as Tony Stark will be Academy Award nominee Robert Downey, Jr, who might know something about portraying a wealthy alcoholic.

And as his right hand man Jim Rhodes, Academy Award winner Terrence Howard.

And as his secretary and conscience Virginia Potts, Academy Award winner Gwyneth Paltrow.

Directing will be Jon Favreau, who is certainly competent and well known after hits like Swingers and Elf, though he's much more recognizable as an actor.

That all tells me that Marvel continues to attract top talent (and I, at least, am also looking forward to Nicholas Cage as the Ghost Rider coming soon, though it probably won't move the needle for MVL), and that they are not trying to squeak out bargain basement flicks without stars as has occasionally been done in the past with their characters.

And it tells me that 2008 should be a year when they make a lot of money, since they'll want to front load their self-produced slate to make sure they get the surest hits made first (some of their movies are bound to flop, but as long as they've made money from some hits first they should be in fine shape). Following Iron Man, it'll be a sequel (really a re-start) for the Hulk, since no one was really happy about the first Hulk movie ... and then, hopefully, we're off to the races. Thor, the Avengers, Ant-Man, Captain America, and Nick Fury (already unfortunately immortalized in a terrible film by David Hasselhof a few years ago), and a long list of somewhat second-tier heroes are on the list for consideration for these self-produced films.

As I noted above, Marvel isn't cheap -- but it's a whole different company than the one that existed a couple years ago. No longer a safe bet on a continuing stream of decent royalties built on a stable of popular superheroes, it's now also a big film production house that will make two of its own movies each year and, in many years, rise and fall dramatically on the success or failure of those films. I continue to like their chances.

Disclosure: I own MVL shares as of this writing and do not plan to sell or buy more in the near future.

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