Down 45%, there’s never been a better time to buy this Dow growth stock
The stock market as a whole had a difficult six months, with the Nasdaq Compound down about 22%, the S&P500 down 11%, and the Dow Jones Industrial Average down 7%. But these declines are nothing like what many individual stocks have endured. In six months, waltz disney (SAY -3.77%) the stock has lost more than 28% of its value and is down about 47% from its all-time high set in March 2021.
Investors have relied on Disney dividends in past recessions. But the company has shown no intention of reinstating its semi-annual payment since it was scrapped in 2020. That makes Disney one of only three Dow stocks – with Boeing and Selling power – which does not pay dividends.
Despite Disney stock plummeting and the lack of a dividend, there’s reason to believe there’s never been a better time to buy. Here’s why.
The stock market can do crazy things in the short term. But usually there are valid reasons why stocks go up or down. To understand why Disney shares can fall so far when their business is in better shape than a year or two ago, it’s best to step into the shoes of a short-term trader. Or, as Charlie Munger puts it, “reverse, always reverse.”
In his book The psychology of money, Morgan Housel has a great lesson on the importance of knowing what game you’re playing. The stock market is a playground on which several different games are played simultaneously. There are long-term retail investors, short-term traders, investment banks, hedge funds, exchange-traded funds, mutual funds, family offices, and more. The fact is, the stock market can be pulled in different directions by players who have different goals than yours. And that’s one of the reasons we have stock market volatility.
Short-term headwinds galore
Disney’s short-term outlook is dire. And there’s no sugar coating.
Disney is facing political tensions in Florida.
netflix (NFLX -5.10%) reported subscriber losses in its most recent quarter, raising questions about whether the industry is worth investing in as competition intensifies. Disney+’s long-term viability is uncertain although it is expected to reach profitability by FY2024.
Disney is spending $32 billion on content in fiscal 2022, which could backfire in the event of an economic downturn or recession.
Disney has spent a lot of money hoping to land several blockbuster hits. But the lockdowns in China have already taken away some of that streaming revenue. And the figures could be lower than expected if the general economic situation deteriorates.
The Disney Parks business is driven by discretionary spending and consumer health. It is historically vulnerable to a recession.
Add it all up and it’s easy to see why short-term traders would avoid/bet against Disney stocks.
Maintain a long-term mindset
As bad as the short-term outlook is, long-term investors are in the catbird seat as they have the opportunity to buy Disney stock at roughly the same price as five years ago. As a stock, Disney may seem less attractive due to its high expenses and lack of a dividend. But as a business, not paying a dividend saves Disney nearly $3 billion a year.
Disney recorded an operating loss of $1.48 billion in its direct-to-consumer (DTC) segment in the first half of fiscal 2022, which coincidentally matches what it would have spent on its dividend. So, by not paying a dividend, Disney can “afford” its DTC losses.
In the long term, Disney plans to make its DTC segment profitable. The idea is that over time, Disney+, ESPN+, and Hulu subscribers will expand Disney’s global reach and increase its consumer touchpoints, leading to greater interaction. Its streaming services could help boost movie attendance, park visits, cruises, and more.
Judging the performance of a single business unit alone misses the big picture of what makes Disney such a phenomenal company. Unlike Netflix, which produces and licenses content in the hope that subscription revenue exceeds its costs, Disney engages in multi-generational storytelling by engaging with fans onscreen and through in-person experiences. . This gives Disney franchises a much longer lifespan and various mediums to entertain its fans. Therefore, the goal of Disney+ is not just to generate profits. It’s about enhancing the Disney brand and convincing fans to take their experience to the next level by going to the movies or a Disney resort.
From trash to treasure
From a short-term trader’s perspective, Disney stock doesn’t look so good. But from the perspective of an investor who cares more about the next decade than the next quarter, the media company is well positioned to unlock a new revenue stream and smash its box office and park attendance records with time. With the stock down and out of favor, now is a great time to buy Disney stock.