Buy When the Bad News Piles In

Sometimes, it seems like a company can do no wrong. That’s when it’s a dangerous time to invest. That’s because good news pushes prices higher. But once buyers are exhausted, even more good news is unlikely to move prices higher.

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  • The reverse also holds true. When a company has had a series of poor earnings reports or other bad news, one more event likely won’t move things too much lower.

    Entertainment giant The Walt Disney Company (DIS) has been hit with a lot of negatives in the past year. Streaming subscribers have slowed. The company’s legal carveout in the state of Florida has been revoked, and executives have been departing.

    That’s kept shares flat over the past year, even as the rest of the market has started to move higher. Part of that performance reflects the market’s poor view of media companies in general right now.

    That dour outlook has shares now trading under 17 times forward earnings, a significant improvement from the 79 times earnings shares traded at a year ago.

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  • Action to take: Long-term investors may want to consider building a stake at current prices or under $90. Disney suspended its dividend in 2020, and is looking to reinstate it at the end of the year.

    For traders, shares are likely to trend higher with stocks in the next few months. The September $100 calls, last going for about $2.15, could see mid-double-digit returns on a move higher.


    Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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