Does Bad Economic News Always Equal Good Stock Market News? What Makes Disney (DIS) a Big Long-Term Winner?
September’s U.S. stock markets continued with their extreme volatility, which resulted in a loss of 2.6% in the S&P 500 for September and down 6.7% year-to-date. The S&P 500 experienced wild daily swings throughout the month due to uncertainties surrounding China’s growth prospects and the failure of the U.S. Federal Reserve (Fed) to start raising interest rates (which would have affirmed the steadiness and positive outlook of the U.S. economy).
While the most recent manufacturing and jobs creation data were very disappointing and should have driven U.S. stock prices lower, the S&P 500 instead rallied for a few trading days at the end of the month. This is clearly a case of stock market reverse psychology, where bad economic news means possibly delaying Fed interest rate hikes, which stock buyers love. However, we are not convinced that a rally based on the Fed delaying rate hikes is sustainable.
Although we see no need to change the asset allocation in our TSOA Retirement Allocation Model Portfolios, we remain cautious that the S&P 500 may still test the low 1800’s in October (1,920 on September 30th) before a new catalyst can drive a sustainable rally that is based on a stronger U.S. economy and better corporate profits. However, some selective individual stock buys exist in this market scenario and at the right price.
A Dozen Reasons to Own Disney (DIS) Now!
We believe Disney (DIS) is one of the best buys today at around $100/share for the following reasons:
- DIS stock recently experienced an 18% discount in its price (from a high of $122/share to around $100/share on September 30th).
- The drop in cable-related revenues which caused the recent decline in Disney’s stock price will be short-lived.
- Cable content is “King” and Disney is the “King of Kings” of content.
- Shanghai Disney is scheduled to open for 1.3 billion Chinese consumers in Spring 2016.
- Theme park revenues continue to grow despite high prices.
- Disney’s Star Wars franchise will add significantly to future profits with the new movie “Star Wars – The Force Awakens,” which comes out in November 2015.
- More Star Wars movie sequels coming in future years will add to profits.
- There is a great deal of anticipation that Disney will build dedicated Star Wars theme parks (with separate admissions charges) in California and Florida.
- Disney Cruises is a small but growing brand in a trendy consumer space.
- Disney will leverage its brand into many more consumer-centric services and products.
- The growing ranks of grandparents with discretionary income will play a big role in Disney’s growth for years to come.
- Owning Disney is a great way to profit from all the money you will personally spend on Disney fun times.
There is rarely a better way to own the future than by owning Disney stock.
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Note: Jim Tso owns Disney stocks in his Roth IRA and other family accounts.