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The escalating trade war between the United States and China has forced traders to dig into the fundamental analyses they have conducted on stocks they are invested in to determine which companies are going to be strong enough to weather the recent volatility on Wall Street.
Some companies are proving to be worthy of their current valuations, and some companies are not.
One stock that is proving worthy of its strong valuation is The Walt Disney Company (NYSE:DIS), which is why we’re recommending a bullish trade on it this morning.
A Big Earnings Beat
DIS shot higher on April 12 after the company announced it was going to release its new streaming video service — Disney+ — at a $6.99 per month price point. This aggressively low price point was seen as a shot across the bow of Netflix (NASDAQ:NFLX). DIS is obviously looking to grab market share, and the company has the deep pockets to do so.
The stock’s impressive gap higher caught our attention, but we wanted to see whether it would hold onto its gains or retreat lower once the company reported quarterly earnings. Spoiler alert: the stock held firm.
DIS beat its revenue estimates by $390 million and its earnings estimates by a whopping $1.97 per share — coming in at $14.92 billion and $3.53 per share, respectively — when it reported its quarterly earnings last week.
Holding Support While the Market Retreats
Since reporting earnings, the stock has remained above the top of the gap that formed on April 12. It’s also stayed above the support level at $130 that formed in the days after the stock gapped higher.
Looking at the chart above, we see the stock has come down off of its recent 52-week high of $142.37. But DIS has held at support while the rest of the market has been retreating in the aftermath of the tariff increases from both the United States and China. That shows the stock is still strong.
We’re confident DIS will remain strong in the near term for a number of reasons.
First, the wild success of The Avengers: Endgame, which has raked in more than $2.5 billion worldwide, should continue to stoke bullish interest.
Second, the company’s recent move to take control of Hulu should bolster the company’s position in the streaming media landscape as it prepares to launch Disney+.
Third, the upcoming opening of Star Wars: Galaxy’s Edge in the Disneyland theme park — accompanied by a price bump for Disneyland tickets — on May 31 is likely to boost theme park revenue for the company.
We recommend selling puts against the stock to take advantage of DIS’s bullish momentum.
To find out which puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.
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