Top Picks for 2010: National CineMedia (NCMI)

Slaughter explains, "Coping with last year's painful recession was tough. To compensate for the lack of cash coming in, virtually every company went into cost-cutting mode.

"Unfortunately, the ax fell hard on advertising budgets. These deep cutbacks have helped many firms remain above water, but they are only a temporary solution.

"We've reached a point where businesses in every industry will soon be forced to aggressively reach out to new customers or risk falling behind the competition.

"But advertisers will be smart and demand the most bang for the buck, which plays right into National CineMedia's hands.

"Because theatre advertising is far more effective than other mediums, National CineMedia commands premium rates and is attracting new clients.

"If you've been to the movies lately, chances are you were one of the 700,000 people to see the firm's exclusive 'First Look' content while waiting for the show to start.

"National CineMedia dominates the cinema advertising market, having locked up 30-year agreements with leading exhibitors like Cinemark and Regal Entertainment.

"TV and magazine ads are little more than a distraction, but the theatre is a whole different ballgame.

"Studies have shown that 73% of theatre visitors can recall the commercials they saw, versus a mediocre television retention rate of 13%.

"Not surprisingly, advertisers are willing to pay extra to get their message out through this medium. Theatre ad rates run 1.3 times those of prime time TV broadcasts -- are premiums are even higher in more mature markets like Europe.

"In-theatre advertising is still in its infancy. With annual revenues of just $500 million, it only accounts for a two-tenths of 1% drop in an overall $280 billion advertising bucket.

"But that is changing rapidly. The industry has been expanding at an impressive +24% annual clip. And with media spending shifting towards digital platforms, National CineMedia has been adding names like Lexus, Visa, E*Trade and Carnival Cruise Lines to its growing client roster.

"Keep in mind, theatre partners pay for their own digital projection equipment, so ongoing expenditures are minimal and sales growth should scale nicely to the bottom line."

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