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The market rewards those who are patient. As I've said many times before, the market can be extremely irrational at times. These short term irrationalities are our opportunity to strike and really have some strong impact as investors. Just as with my GOOG call last month (should I take a bow now? Just kidding!) I believe that I've found another stock that has been beat down in the short term and presents strong value at this point. I always anchor my investing strategy on strong quality companies that are simply undervalued. I'm ready to share with you my next position.
The stock I am looking at is Disney (DIS). Disney is currently priced at $93.36 per share down from its February high of around $115 per share and its 52 week high of $144. As with any market opportunity, there is a reason or two Disney is down. Just like with our Google write up last month, these short term issues are a good thing for patient investors who can see past these issues and read the long term picture.
Let's address what has Disney Stock down at the moment. It really comes down to 1 thing. Streaming. Disney+ lost subscribers last quarter. This is the first time this has happened since Disney+ has existed. Throw in on top of that that Disney+ is losing money at an alarming rate. This has investors spooked and has them making disney the dog of the month. Disney has dropped by over $20 per share since February. This is where we step in as opportunistic investors.
Let me tell you why I am not worried about this trend. First, Disney has stepped in and taken immediate action. They've brought back their legend former CEO in Bob Iger. Bob has seen Disney through their most successful moments. He stepped right back into his lead roll and announced a massive cost savings plan. Disney plans to cut billions of dollars in spending over the next few years. They are cutting back on some unnecessary positions and dialing back the content a bit for Disney+. The other thing that puts my mind at ease is that the parks division of the business is still massively successful. Revenue was up 27% year over year in fiscal Q1 of 2023. Disney+ is also projected to be profitable by the end of 2024. In my mind, there are certainly issues that they have do deal with, and they are. These issues are short term and I believe present a good buying opportunity in the stock right now. And lastly, when you zoom out and look at valuation estimates for DIS my favorite research service still has DIS with a fair value estimate of $155.
I am planning on buying both shares and call options on Disney. The shares are pretty basic. I plan on buying and holding for the long term, especially since Disney is planning on reinstating the dividend soon. The calls are where it can get a little more tricky. You can be right about the idea but wrong about the timing. I believe that it is super important to give your calls time to breathe before expiration. I am a proponent of at least a few months. In this particular scenario I am buying $95 DIS calls with an expiration of 7/21. My hope is to sell them when the stock goes up for a nice concentrated profit. Obviously, this has an element of risk to it. Any dollar you invest into calls can go to zero. It can also provide outsized returns. I recommend putting the bulk of capital into shares as opposed to calls. If you want to take a bit of risk for concentrated returns then sprinkle a few calls into the equation.
As with any investment, this is just meant to help generate an idea for you. You should go and do your own research and see if this type of investment meets your investing thesis. I personally believe the market is underestimating Disney's power and scale of the brand that they've built over the past century. I expect this recent stock dip to be nothing but a minor blip down the road.
Happy Investing!
-Caleb
