Mickey Mouse is selling at a fat discount right now! The world-famous logo of Mickey is one of the most loved and iconic images of all time. Now is the perfect time for investors to buy into the shares.
In fact, it has come to respectfully represent the United States in China and other Asian nations where the treasured American culture goes hand in hand with Mickey’s owner and creator, The Walt Disney Company (NYSE:DIS).
I was quite surprised to see the parent of this iconic logo selling at a steep discount on our proprietary stock screener. Digging deeper into the reasons for the discounted price made it clear that Disney is setting up to be an ideal buy candidate for savvy long-term investors.
Before we get into the details of why this behemoth of a company is a great buy currently, let’s take a look at how it was first identified on the screener.
All day, every day the market is open, I am running my various stock screening programs in real time. I search across time frames, sectors, indexes, and ETF’s in an effort to locate companies that are trading at a discount to their true value. These firms frighten the average investor, but professionals understand that this is how money is made in the stock market.
In other words, strong investing set ups that can be exploited for profit.
I utilize a variety of traditional technical indicators mixed with several proprietary ones to locate these opportunities. I short term day trade as well as longer term swing trade. The criterion used to identify tradable stocks depends on the time frame used. Obviously, scalpers look at different factors than swing traders prior to entering a trade.
My bread and butter profit making method is long term investing with a six month to several year holding time.
I have discovered that buying weakness in solid firms with strong fundamentals has a quantifiable edge over buying stocks making new highs.
It’s not only my experience that supports this idea, it’s extensive studies done by market researchers that continually indicate that the edge lies in buying weakness not strength in the stock market.
What I look for is a stock that has fallen for several weeks but has previously demonstrated a strong upward trend.
The major caveat is that the share prices needs to have found a bottom and has started to bounce higher.
If you try to buy a stock that is dropping prior to it forming a bottom, it is crap shoot as to how far it will continue to fall prior to bottoming. Certainly, waiting for a technical bottom bounce to occur is no guarantee the bounce higher will continue. However, it definitely increases the odds that price has bottomed for the longer term.
The secret is making certain that there are real, long term bullish fundamental catalysts lifting the shares and it isn’t just a dead cat (or mouse in this case) technical bounce that will quickly fade.
A Look At Disney
After Disney popped up on the technical screen, I was thrilled to learn of powerful fundamental catalysts that are at work in the shares. The recent sharp market sell off exasperated the already unwarranted negative opinion many investors held of the company.
Most everyone knows Disney due to their TV, movie and global theme park presence. Lesser known is the fact that Disney consists of five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media.
Media Networks comprise an array of broadcast, cable, radio, publishing and digital businesses across two divisions – the Disney/ABC Television Group and ESPN Inc. Walt Disney Parks and Resorts (WDP&R) is a provider of family travel and leisure experiences.
The Walt Disney Studio brings movies, music and stage plays to consumers throughout the world.
Disney Consumer Products (DCP) delivers product experiences across thousands of categories from toys and apparel to books and fine art.
Disney Interactive is a creator of interactive entertainment across all current and emerging digital media platforms.
The company recently reported solid third quarter earnings but the share price has plunged over 20% since this time. Each of the company’s four primary divisions reported strong revenue and operating profits. In fact, the EPS profits of $1.45 were a record for the company and beat estimates by a full $0.03 per share.
Add in the fact that the company’s EPS has grown at an average 19% annually over the last half decade. Very impressive by anyone’s standard! This alone should paint a very bullish picture, yet the shares have still sold off due to investor fear and nervousness.
Why The Unwarranted Sell Off?
Well, the overall market weakness has something to do with it, most analysts are in agreement that the primary reason for the selling is CEO’s Bob Iger’s statement about ESPN. You see, the CEO pointed out that ESPN’s subscriber base is falling due to cheaper alternatives currently available. Bearish leaning, quick tempered investors dumped the shares out of fear. They missed the facts that many of the network’s deals stretch out into the next decade and most all sport’s programming is watched live. Not to mention that Disney’s media division has been growing revenues and still boasts impressive subscriber numbers.
As you can see, the selling is completely overdone based on the fundamentals. The company trades for approximately 20 times its projected earnings of $5.00 per share. Profits are still forecasted to grow at a minimum of 10% in fiscal 2016. These are handsome numbers coming from any company. When they come from a powerhouse like Disney, it solidifies the buy now suggestion.
Huge potential bullish catalysts such as the opening of the Shanghai theme park and another Star War’s movie are pending. The merchandizing alone surrounding Star Wars is creating a huge stir in the toy industry.
The company has reportedly expanded the merchandise offerings that will come with the film as it seeks to generate more than $2.2 billion it generated in 2013. However, that will depend on the public response to the characters that will come with the latest film.
With that said, Walt Disney has already reiterated its desire to enable the industry record its biggest sales in over a decade. Research group NPD Group has forecasted that sales could top highs of $19.2 billion attributed to the Star Wars toys.
Disney’s main toy licensee store Hasbro Inc is banking on the toys with expectations that revenues could more than double to $415 million. Some of the products that the store expects to generate impressive sales include action figures, lightsabers and toy aircraft. Believe it or not, it’s just not kids buying these toys. BMO Capital Markets analyst, Gerick Johnson, states that adults could account for more than half of ‘action figure’ sales.
The new Star Wars movie is expected to hit theaters on December, 18 and will be accompanied by televised toy unboxing events and other hype inducing tactics. Just the energy alone surrounding this release should act a bullish impetus for the shares
However, these are large expenses yet will likely turn into profit centers in the future. Add in the fact that college and pro football are about to return to ABC/ESPN and it paints a very bullish picture for the conglomerate.