George Clooney Picked Our Next Winner

15 | By Michael A. Robinson

The sci-fi flick “Gravity” is tearing it up at the box office.

The film, which stars Sandra Bullock and George Clooney, tells the tale of a “routine” space shuttle mission gone wrong, grossed $55.8 million for its weekend release earlier this month. Reviews have been stellar. Oscar talk has already started.

Audiences are saying that the amazing special effects – known as “F/X” in the movie biz – are a key reason they dig this film so much.

And critics are saying it’s the amazing digital sound effects that make the movie seem so realistic and that could lead to an Academy Award nomination for “Gravity’s” audio quality.

But here’s what I want to tell you – and it’s something that moviegoers and critics know nothing about.

There’s a great way for tech investors to cash in on this revolutionary audio technology. It’s a company I know very well.

In fact, it’s a stock that could easily double your money.

The Music Man

Ever since I can remember, I’ve been fascinated with sound. I’m talking about the “technical” aspects of sound.

I consider the audio quality almost as much as the music I listen to or the films I watch.

I’ve put this obsession to good use. Even after I launched my career as a tech guru, I continued to “front” my own bands at night and on weekends.

Besides playing more than 150 live shows, I also recorded and released five compact discs of music. I was in the studio for hours listening to every detail for the mixing and mastering of those recordings.

So, when it comes to understanding audio technology, you could say I’ve really paid my dues.

And there’s one company – a mid-cap technology leader – whose products I’ve been using in one fashion or another for just about every day of my entire adult life.

That hard-won experience is a major reason why I’m such a big fan of Dolby Laboratories Inc. (NYSE: DLB), whose headquarters are situated about a 20-minute drive from me in San Francisco.

Since its founding in 1965, Dolby has set the standard in sound quality across a wide and growing range of audio systems and film soundtracks. Today, it is best known for creating the high-definition, multi-channel audio that Hollywood simple can’t live without.

Indeed, you’d be hard-pressed to find any major brand audio or video player that doesn’t employ at least one of Dolby’s digital formats. We’re talking hundreds of millions of compact discs, DVDs, audio and video players and receivers.

Racking Up the Oscars

When it comes to audio technology, Dolby has a history of pushing the limit.

And “Gravity” – along with the film’s sonorous sound effects – has put Dolby back in the spotlight, and reminded investors of the new sound platform that made it all possible.

The high-tech magazine Fast Company said “Gravity” sound effects were an “equally astounding part of the thrill” of seeing the hit movie. Audio-video trade journals are just as impressed.

The focus of their admiration is Atmos, the new surround-sound movie system that was just released last year.

With Atmos, a theater projects sound effects throughout the room to precisely match the special effects that are unfolding on screen.

Dolby’s Atmos Cinema Processor CP850 is tailor-made for today’s digital cinemas and gives audiences the most realistic sound available. Combined with specific speaker location, Atmos renders a real-time custom mix for rooms that accurately replicates the exact audio experience intended by the sound mixer.

The success of “Gravity” and the Atmos system should generate more sales for Dolby. The company is already famous for its work in pioneering the multi-channel surround-sound systems that are now integral to today’s movies, especially those filmed in the high-definition (HD) format.

Now you know why Dolby has won a string of awards that include several Oscars for technical achievements. Last year alone, nearly 10 films using some form of Dolby audio were up for Academy Awards for sound.

In fact, for the past 35 years, every film that has earned an Academy Award nomination for either sound editing or mixing relied on Dolby audio technology. And that list includes such winners as:

  1. “The Hurt Locker.”
  2. “Raiders of the Lost Ark.”
  3. “E.T., the Extra-Terrestrial.”
  4. “Titanic.”
  5. And “Saving Private Ryan.”

The Sound of Money

For investors like us, all that we’ve discussed so far adds up to only one thing: A hefty profit potential.

That’s because Dolby is the kind of high-margin business that we look so carefully to find.

Dolby has a 21% profit margin and earns more than 12% on stockholders’ equity (ROE).

The company is also a cash-flow machine.

Dolby is sitting on roughly $518 million in cash and has no debt. Last year, it generated nearly $122 million in free cash flow (FCF). And it’s a shareholder-focused company, returning some of that cash back to shareholders with a high-enough payout to give the company a 4% dividend yield.

One of the reasons we’ve been so successful in delivering big-profit winners to you here at Strategic Tech Investor is that we’ve been able to “see” miscast and misidentified companies in their correct light.

Take Dolby, which lots of folks view as a hardware or turn-key “systems” company.

That’s nowhere near as sexy – or as valuable – as, say, a software firm.

And that’s what Dolby really is.

You see, Dolby does sell “editing” stations. But most of its revenue comes from licensing its technology to other companies. For instance, Dolby Digital Plus already resides on more than 640 million devices around the world. And those devices cover the gamut – including everything from “smart” TVs to gaming consoles to Blu-ray DVD players.

And when it comes to the new trend of online streaming, Dolby is definitely in the mix. It has struck deals with the surging Netflix Inc. (NasdaqGS: NFLX), VUDU and CinemaPlus from Best Buy Co. Inc. (NYSE: BBY). And Dolby’s technology resides on millions of cable-TV set-top boxes.

Dolby also has partnered with European electronics giant Koninklijke Philips N.V. (NYSE: PHG) to provide viewers with a 3D TV experience that does away with the need to wear those silly glasses. This tech also works on laptops, tablets and smartphones, Dolby says.

The Catalyst Nobody Sees

The shares have finally started to show some life. So far this year, the stock has rallied some 25%, with half of that coming in the last six weeks.

Dolby shares are currently trading at about $35 a share, giving the company a market value of $3.6 billion.

And the stock still has plenty of upside. The stock sold off back in late 2010 after the company lowered guidance for its 2011 fiscal year.

If Dolby simply regained its three-year closing high of $69.51 set just before that sell-off, you’d be looking at a double from here.

And the catalyst for that rebound might be just around the corner.

Dolby reports its fourth-quarter and fiscal-year results on Oct. 29.

If the company builds on the recent Atmos buzz – and demonstrates progress in controlling costs – you could see the stock gain some real traction,

And very quickly …

Rest assured that we’ll be keeping an eye on Dolby.

In the meantime, if you end up going to see “Gravity,” drop me a line and let me know what you think of the flick – and the sound “F/X” created by Dolby.

Because, hey, that’s the kind of “investment research” that can be a real blast.

We’ll keep you posted.

[Editor’s Note: Thanks to you folks for the kind and useful comments on last week’s column on Apple Inc. (Nasdaq: AAPL). I use your input to help guide our choice of future topics. And, as I also noted, the publisher here at Money Map Press uses your postings to determine which of these “free” e-letters are worth continuing. So your posted questions, comments, compliments and suggestions are both useful – and welcomed.]

15 Responses to George Clooney Picked Our Next Winner

  1. Erv Dodrill says:

    What is Dolby or anyone else doing in the area of improving the quality of Music
    for hearing impaired folks—
    yes I am one— and even headphones ( although an improvement ) don’t
    come close to the brilliance of live music—-

    Seems the massive sounds of the symphony or the close harmony of the big band era are gone forever to the hearing impaired—–
    Being a musician for some 75 years —-the thing I miss most in life is true reproduction of great music——Any help on the horizon ?????
    Thanks for listening———Erv

    • William Patalon III says:

      Dear Erv:

      I saw your note and wanted to give you an immediate reponse — because I know just what you are saying.

      I’m a radio hobbyist myself, and have been for many, many years. I especially like to listen to the distant broadcasts of other countries’ shortwave radio stations (which are falling by the wayside due to the Internet and the global financial crisis).

      Years ago, when I embarked upon this hobby as a teen, “solid state” receivers were taking over the market. But the vacuum-tube fired “boat-anchor” radios were still plentiful. And the sonorous richness of the sound they produced was unrivaled — and remains so today.

      I love the advanced radios I now have at my disposal. But I understand just what you’re saying.

      We’ll look into this, and will get back to you.

      And thank you, sir, for posting.

      Respectfully yours;

      William (Bill) Patalon III
      Executive Editor
      Money Map Press LLC

    • William Patalon III says:

      Dear Craig:

      The plain truth is that when we do as you suggest, our statistics show that the interest, open rates and satisfaction with our newsletters falls off a cliff. We’ve researched this very carefully. And the bottom line is that our readers, by and large, prefer this approach.

      Here’s the other thing: With a service like this, we’re making quite an investment, and are devoting a great deal of time and employee power to making sure that the quality is as high as possible. And this is a totally free service.

      Thanks for taking the time to post. We really appreciate it — which is why I felt you deserved a quick and respectful response.

      William (Bill) Patalon III
      Executive Editor
      Money Map Press LLC

  2. fred rippetoe says:

    Thank you for a well thought out article! As a former projectionist at a drive in theater and having worked indoor theater’s as well I’ve experienced the Awesome effects of Dolby Sound first hand(in control situations)and when my finances are more solvent I will definitely “Put Attention ” to your advice!!! ‘Till then the enjoyment and thought provoking effects of your writing provide me Food For Thought with an opportunistic light!!!

    • Michael Robinson says:

      Hi Fred,

      Thanks for contacting me. I’m an age in life where I still remember going to the drive-in movies. Very different era. Yes, Dolby has great audio technology. By the way, I’m here to help you get to the point where you have more money to invest.

      Cheers and best wishes,


  3. Rob Solomon says:

    Thank you for the valuable insight at a price we can all certainly afford. I have taken your advice in the past and it has almost always paid off.

    • Michael Robinson says:

      Hi Rob,

      Great to hear from you. Congrats on your investing success. I hope you make piles of more money from high tech. Cheers,


  4. Charlie Ward says:

    I saw “Gravity” last weekend. The sound and special effects were startlingly delightful. Totally awesome in IMAX 3D.

    Sadly, the story line is a worn out, modified Hollywood chick flick, where the placement in space brings in all the excitement.

    Also, very sadly for me personally, the numerous technical errors just blew me out of the movie entirely. A NASA engineer blogged his total disgust for the movie’s lack of accurate treatment of reality.

    But, of course, what is Hollywood? NOT REALITY, so given that giant caveat, the movie must be great in terms of Hollywood. Let’s see how much acclaim the rest of the movie gets.

    • Michael Robinson says:

      Hi Charlie,

      I saw the movie with my wife, who is not an audio enthusiast. She thought the sound effects were just awesome. I’m not a theater critic so I don’t want to comment on the story line. But I do believe the film will garner at least one Oscar nomination for audio.

      Cheers and best wishes,


  5. jwill says:

    Thank you all for the great efforts you put in these Tech Reports.
    I get tons of email in my inbox daily, How can you standout more for all
    your special Strategic Tech Report to avoid deletion?
    Can the team focus more on us smaller and junior investors for the future,
    and at the same time, profit immediately in todays technology sector?
    Thank you very much. And God Bless America. Jw,,

    • Michael Robinson says:

      Hi JW,

      Thanks for contacting me with your suggestions. First of all, as regards emails, please be sure to “white list” us so we don’t go straight to the junk mail folder or the trash bin. As regards stocks here at STI, I try to write about a range of investing ideas, from small caps to mega caps and everything in between. I have written about several low-priced small caps in the very recent past. But I will keep your comments in mind for future columns.

      Cheers and best wishes,


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