A Tale of Two Hollywood Stocks: IMAX and Viacom

Here's why the market has taken notice: for the first quarter, the company saw revenues more than double and adjusted net income rocket to 53 cents per share versus a loss of 6 cents per share in the comparable period. Estimates called for 37 cents per share. Plus, as this Reuters article highlights, the gross margin was superb.

Fellow investors, that's beyond impressive. The long-term thesis on this one is very attractive. Since Avatar, moviegoers have really taken notice of the company's platform. And there are more tentpole projects on the way that will make use of the system; as an example, Iron Man 2 will be out soon.

We now have to talk about the stock. The 52-week high on the shares is $21.30, which was hit this past week. Unfortunately, IMAX has pulled back from that level pretty quickly: as of this writing, shares are down 4.9% to $18.76.

Well, every investor and/or trader has a different goal with each idea. If you weren't thinking of holding IMAX for a long time, say, more than a year or two, and if you still have a significant profit in your position, I would consider taking profits; I have a feeling IMAX might encounter some short-term trading difficulties. However, those who would like to get in on what seems to be an alluring growth scenario should definitely perform some due diligence on this one. Even if you bought on today's dip and found yourself forced later on to make additional purchases to improve the cost basis, I'd have to believe the stock will eventually turn out to be a rewarding experience.

Next up is Viacom, Inc. (VIA), a media operation whose related companies include The Walt Disney Company (DIS), News Corporation (NWS), Sony Corporation (SNE), and Time Warner (TWX). This stock has also done well over the last year. But how was the Q1 release?

Not bad in terms of the bottom line. Net income from continuing operations came in at 40 cents per share, a performance that represents a growth rate of 38%. According to Bloomberg BusinessWeek, analysts were projecting three pennies less. Okay, I like that part.

I'm not so keen on the 4% decline in the top line, however. And I'm not enamored by the operating loss seen in the movie division, either. Maybe I shouldn't complain; the loss in filmed entertainment this time around was narrower than what was recorded in the year-ago period. It's just that I'm of the opinion that the movie business is ridiculously inefficient.

I'll give some credit to media networks. That division increased its operating income by 9%. But the segment cannot rest; further growth opportunities have to be uncovered. MTV in particular must continue to work diligently to keep the ratings trend going in the correct direction.

As far as the stock goes, I'd say it's a short-term buy on a pullback. Right now, shares are a little weak: they're down 1.2% to $39.23 in afternoon trading. Ideally, I'd rather get Viacom at $35 or below, but I'm not certain they will go down that far; at this point, it probably depends on the overall action of the major indexes.

Bottom line: If you're looking for the best growth potential, it is, without a doubt, IMAX over Viacom; however, IMAX will most likely be more volatile than the film-and-cable entity.

Disclosure: I own Disney; positions can change without notice.