The headlines remain scary: oil prices above $100 per barrel, world economies in recession, inflation taking grip, investment banks failing, mortgage giants taken over by government, housing prices falling. It is enough to make your head spin. One would think the world was ending.
Well, the headlines are indeed scary. That’s the point here. News organizations are now huge corporate entities trying to make money and cary headlines sell. Fortunately for diligent investors, if you look past the sensational headline, we can find some really interesting opportunities.
Flash–there is good news out there–Yyou just need to look for it.
One nugget that has caught my eye this week was a story regarding one of my favorite companies Walt Disney Co. (DIS). At the London premiere of, “Camp Rock,” Chief Executive Robert Iger stated that his company was proving to be very resilient in the face of challenging operating conditions.
Maybe it is in fact, a small world after all.
Pleanty of Demand for Disney Products in the U.S. and Abroad
DIS now receives nearly 25% of its sales from outside the United States. Growth internationally combined with a weak dollar that brings in foreign travelers to domestic theme parks. Such is proving to be a potent combination. The best news is that the world is actually quite large, leaving many areas that are yet untapped. Thus future growth for DIS is expected to be quite robust (In fact, many of my entertainment stocks have done quite well over the past year. See, “Marvel (MVL) Shows It’s Super Human Strength.“)
In 2004, I made Walt Disney one of my Rational Investor model portfolio recommendations. At that time shares traded for about $20 per share. I thought that price was too low for a company that had a proven track record of growth. It turns out that owning DIS at that time…> was a wise decision. Shares hit $35 per share by the end of 2006. It was easy money. What about today?
Is owning DIS a wise strategy at the moment?
Shares of DIS appeared to have hit a ceiling at $35. They have traded in a tight range between $30 and $35 per share over the last two years. Only twice have they dipped below $30. Today you can own DIS for about $32, and I think that is an attractive price.
The statements by Iger are very reassuring and could potentially set fire to shares. At least it should. Specifically, the potential for international growth is quite exciting. There are plenty of children in the world that have yet to be touched by the magic that is Disney. Having navigated a difficult economic environment in the US, DIS is poised to rebound substantially when the current malaise ends. There is plenty of pent up demand for DIS in the U.S.
Anecdotally, I spoke to a colleague recently who was taking an overdue trip to Orlando with his wife and four children to visit the Disney theme parks. I’ve been planning to do the same with my brood. In addition to theme parks, the company stated that they are investing heavily in video games. To the extent they have success there, and I see no reason to doubt it, DIS can be expected to grow earnings for the foreseeable future (see also, “NVIDIA Corp. (NVDA): Not Just for Gamers“).
Shares trade for a modest multiple of earnings this week. Its trailing price to earnings ratio is 14 and its forward ratio is 13. That is a low price to own one of the best entertainment companies in the world.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight likes this, go to: www.InvestorPlace.com.
