October 19, 2008 in Business

Silver screen tax breaks can be golden

 

There’s a struggle afoot in Hollywood. At issue are tax breaks. Studios want them, to keep from moving film and TV productions to tax-friendlier locales, as happened when ABC’s “Ugly Betty” moved to New York.

California governator Arnold Schwarzenegger says no deal with Democratic legislators is forthcoming. Marvel Entertainment (NYSE: MVL) seems to think it can help.

That’s according to “Iron Man” director Jon Favreau, in the gossip blog Deadline Hollywood Daily. “They’re willing to make a commitment to keep all four productions here in town. They’re looking for existing studio space right now,” Favreau said.

He’s referring to Marvel’s next four self-produced films: “Iron Man 2,” “Thor,” “Captain America” and “The Avengers.” Reportedly, the comic book king would pledge $600 million in production spending in California in exchange for some sort of tax relief. How much relief? “Marvel got an eight-figure rebate check on ‘The Incredible Hulk,’ which was shot in Canada,” Favreau told DHD.

Eight figures? That’s at least $10 million, a terrific windfall for a company whose 37.4 percent effective tax rate resulted in $58 million in cash tax payments over the last 12 months. Any sort of credit related to Marvel’s $600 million in already planned film spending would add muscle to its mighty cash-flow machine.

Perhaps Marvel understands Hollywood far better than we think.

Ask the Fool

Q. Why do stock prices rise and fall from day to day? – D.O., Plano, Texas

A. Over the long run, a company’s stock price changes reflect the changing value of the company. But over the short term, lots of things can move a stock, sometimes senselessly. Some possibilities include: investors reacting to earnings reports, changes in management, new products or services, big contracts landed or lost, famous investors reportedly buying or selling shares, and write-ups in the media. Other factors include: analysts upgrading or downgrading the stocks, the overall stock market rising or falling, other stocks in the same industry rising or falling, heightened fear or greed among investors, good or bad news regarding a competitor, lawsuits filed or won or lost, the prospect of legislation affecting the company’s future, changes in supply or demand for the company’s offerings, global expansion or retrenchment, the industry is “hot” and people expect big things, the company might buy or be bought by another company, or the company will spin off a division.

Ignore short-term moves. Focus instead on a company’s long-term growth and health.

Q. What’s a stock’s “float”? – P.S., South Bend, Ind.

A. It’s the portion of shares outstanding available to be traded by the public. It’s good to pay attention to this number with smaller companies, as stocks with small floats (referred to as “thinly traded”) can be extra volatile.

Consider Porcine Aviation (ticker: PGFLY), for example. If it has 50 million shares outstanding, but you learn that the firm’s founder owns 49 million of them, that leaves a float of just 1 million shares. This means that a modest demand for shares may send the stock price soaring, as supply is so limited. And vice versa.

My dumbest investment

My dumbest investment was buying into a fuel cell maker at $32 per share after it fell from above $100. I didn’t pay attention, and it collapsed again, to single digits. I did no research. It just seemed like a cool local company with a good product. Its management seems to have changed their strategy for the better, so if they survive, I might get my money back in … who knows how long. Do your research! – B.G., online

The Fool Responds: You were right to consider a local company, because those are often the ones we know best. You might, for example, have friends who work there and who have a sense of how the firm is doing within its industry. You were wrong, though, not to do any research into it. Alternative energy is an important and growing field, but not every company in it will prosper. Look to see which firms are growing their sales and earnings, have little or falling debt, have a strong competitive position, and are not depending on a single product for revenue.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus