Take a Fast Pass on Disney Shares at This Price

06/19/19 • 6 min

The Walt Disney Company is known for many things—Mickey Mouse, princesses, world-class theme parks. Its more recent acquisitions into Marvel, Pixar, and now Fox Entertainment make it a great company.
But a great company doesn’t always mean it’s trading at a great price for investors.
That’s the case right now.
Shares of the media conglomerate surged following the announcement of its new streaming service, Disney+. With a huge entertainment catalogue and a starting price point of $7 per month, the company will be going head-to-head with the lowest-cost streaming services, some of which still interrupt their shows with advertising.
While the move is a great one for the company, it’s a move they could have started years ago. For the past few years, shares of Disney have traded in a $95-115 range, as solid operating results have come up against the ongoing deterioration of its lucrative cable contracts. As more and more folks move online, the amount of revenues gotten from its cable channels, particularly the ESPN franchise, has been declining at a rapid rate.
The new announcement has moved shares to the $130 range. Until the new service is fully built out, we’re looking at a new trading range, likely from $115 to $135 per share. Investors looking to own this great company should wait until they’re down to around $120 or so—even if it’s during the next market pullback—before buying.
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Previous Episode

Crisis Investing 101: Buy During Panics

There’s an old investment adage to buy when things look dour. While that sounds great in theory, human psychology makes it difficult. Even thinking about investing in a stock that’s been declining—or has been making news headlines for a defective product—tends to put our caveman brain into flight mode and avoid it all together.
But a pause to think more rationally is where the opportunity arises to beat the market. Recognizing that a company is out of favor for short-term reasons, we can then look a bit further down the line. If that company can solve the problem before it goes bankrupt, then it may be a good investment.
One company that has been getting hit with bad news day after day is Boeing (BA). The airline manufacturer’s woes regarding its 737 Max plane are well known. Shares are up over the past year thanks to the strong stock market rally, but a cloud is hanging over the company in the short-run.
That will prove short-lived. The company’s diverse line of planes shows that the 737 Max is just a small part of the company’s overall operations. And the software issue will be fixed in time—and likely at a far lower cost than a physical manufacturing defect would be as well!
Thanks to the selloff, shares of the company are trading around 16 times forward earnings, a nice discount to the overall market. When we consider that Boeing operates as part of a global oligopoly, with no domestic competitors, we can see how potentially attractive shares really are right now, in spite of the dire news headlines.
It’s not an extreme crisis, but for a solid blue-chip company, it’s enough of a crisis to create a value in this otherwise extremely bullish market.
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Next Episode

How Young Warren Buffett Routinely Beat the Markets

There are plenty of ways to beat the market. Warren Buffett knows them all. For the most part, he’s also tried them all.
Investors with small sums of money can fare well following the modern equivalent of the strategies a young Buffett used to outperform the go-go market of the 1960’s.
For example, Buffett often made trades based on arbitrage opportunities. That’s where a stock has one price in one exchange, but a different price in another. Buy in the lower priced and immediately sell in the higher price, and you get an instant profit.
Today’s fast-trading, information-efficient markets have made such opportunities rare. But when one company announces an acquisition offer for another, there’s usually a low-risk, moderate-return way to use merger arbitrage to your advantage.
Say company A offers to acquire company B at $50 per share. And say shares move to $48 on the news. There’s a $2 opportunity there to buy shares of company B. As long as the merger goes through, there’s a low-risk way to make a moderate return in a short period of time. Just beware—not all mergers go through.
Another strategy is to follow a deep value investing. Young Buffett looked to buy sizeable stakes in smaller companies that were trading incredibly cheaply. But instead of looking entirely at earnings or profit margins, there would also be an analysis of the company’s cash and cash equivalents. In the 1960’s, it was possible to find many small companies often trading for less than the value of their cash per share!
While the opportunities aren’t as extreme like that today, markets are mostly focused on large-cap companies. Finding deep value in smaller-cap companies can still lead to plenty of opportunities to outperform the overall stock market.
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