The Best Roller Coaster Ride in the Market

You're frustrated. You have nothing to do but make small talk and people-watch. As you approach the gate, your heart rate increases. When you enter the roller coaster, you forget about all your worries and focus on nothing but the upcoming steel peak, which will be followed by a 100-foot drop, and then an even higher peak. 

That's living, and it's a fun way to spend a summer afternoon. However, this isn't the type of ride savvy investors want to take. If you choose this route to investing, then you're odds of vomiting will be higher than they would be on an actual roller coaster. Therefore, it's imperative that you choose a steady ride. It might not be as exciting, but it will last longer, and it will allow you to enjoy all the scenery that life has to offer. First, let's take a look at that exciting ride.

The largest regional theme park in the world
This title belongs to Six Flags . If you have been following this column for a while, then you might remember a Cedar Fair article from July 2013.

Okay, so the odds of you remembering that article are close to 0%, but let's pretend I'm that popular for a moment. In that article, I wrote the following about Six Flags after a tragic incident leading to a woman's death: 

"Some may say it was just one accident out of millions of park visitors, but it's still one too many. It should have an impact on the industry and especially Six Flags. Many people who considered visiting an amusement park will now stay away."

This prediction was easy to make, because it was based on logic -- the real key to investing. Not surprisingly, attendance at Six Flags declined due to that incident. However, Six Flags still saw its third-quarter revenue improve 3% year over year. It cited innovative attractions, high guest satisfaction ratings, higher per-capita spending, and upsells. Let's head up the track of optimism for a moment. 

Future innovative traffic drivers
Looking ahead, Six Flags has many innovative rides and attractions planned for the 2014 season. The biggest will be the New England SkyScreamer, which will be located at Six Flags New England. This will be the tallest swing ride on the planet at 400 feet, and it will circle at 40 m.p.h. In addition to adrenaline and invigoration, you will also have an opportunity to enjoy views of the Connecticut River. Though it might sound simplistic, a ride like this is what drives new and repeat traffic to amusement parks, which then leads to increased revenue. 

Other innovative offerings planned for 2014:

  • Goliath - Six Flags Great America
  • Medusa Steel Coaster - Six Flags Mexico
  • Hurricane Harbor - Six Flags Over Georgia
  • New Mardi Gras Area - Six Flags America
  • Tsunami Soaker - Six Flags St. Louis & Six Flags Discovery Kingdom
  • Bahama Blaster - Six Flags Fiesta Texas
  • Zumanjaro Drop of Doom - Six Flags Great Adventure
  • Bonzai Pipelines - Six Flags Hurricane Harbor
  • Extreme Supernova - Great Escape
  • Demon - La Ronde

Steadier rides
The aforementioned Cedar Fair doesn't just have a better safety record. It has received numerous accolades in the industry, especially for its Cedar Point location, which has been awarded "Best Amusement Park in the World" for the 16th consecutive year by Amusement Today. Its Millennium Force has also been rated "Best Steel Roller Coaster in the World". Furthermore, King's Island has been recognized for offering the "Best Kids' Area".  

Six Flags and Cedar Fair both offer very generous dividend payments of 5.20% and 5.70%, respectively. However, that usually comes at a price, which is the case here. For instance, Six Flags has a debt-to-equity ratio of 1.62, and Cedar Fair has a debt-to-equity ratio of 41.15. Investing in highly leveraged companies can be extremely profitable in bull markets. However, when that roller coaster reaches its peak and the market heads south at a hasty speed, interest rates increase with a fury and investors flee to safety. This leaves investors who own highly leveraged companies in a wasteland of regret. Avoiding such a scenario is possible, and simple.  

In order to take that steady and scenic ride, invest in Walt Disney . Disney might only offer a 1.10% yield, but its debt-to-equity ratio of 0.38 is comforting. Not only that, Disney was recently ranked No. 13 on Forbes' "Most Powerful Brands 2013" and that's just based on brand value. For consumer perception, it ranks No. 8. Additionally, its Big Thunder Mountain Railroad and Space Mountain roller coasters are iconic. 

Disney has much greater marketing power than Six Flags and Cedar Fair combined. Disney offers global exposure as well as tremendous diversification with its ownership of television, movie, cruise, and resort operations. Resiliency to bear markets is another big plus for Disney. 

The bottom line
Six Flags has potential to drive its top line through innovation. However, it's highly leveraged which will limit its long-term upside potential. Despite all the accolades, Cedar Fair is also highly leveraged. Therefore, it should be avoided. Even though Disney has branched out into many different areas over the years, it's still a theme park at its heart, and it's still the best theme park to invest in -- by a Magic Mountain. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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