After a short-lived dip that started in the second half of July, the S&P 500 quickly bounced back and is now flirting with a new record high. Investors looking to put some money to work might be discouraged because they believe there aren't many compelling opportunities in today's market.
But that's a flawed perspective. In fact, I believe one company looks like a no-brainer portfolio addition right now.
If I could buy only one stock in the last half of 2024, I'd pick Walt Disney(NYSE: DIS). Here's why.
Disney's transition
One of the most notable secular shifts happening across the economy has been the rise of streaming entertainment at the expense of traditional cable TV. The monster success of Netflix propelled this change. Now, Disney is in the middle of a major transition to its business model.
The company's once-thriving linear networks, like ABC and ESPN, are still generating loads of profits. However, they are in secular decline as more households cut the cord. Consequently, revenue will remain under pressure here.
At the same time, to keep up with the shifting industry, Disney has had to invest aggressively in technology and content to build out its streaming operations, which include Disney+, Hulu, and ESPN+. Direct-to-consumer (DTC) services have so far posted billions in operating losses, which is a key factor that has weighed on the stock.
Disney's latest financial update, though, reveals solid improvements in the DTC segment. Combined, the streaming services generated a positive operating income of $47 million in the fiscal 2024 third quarter (ended June 29). That's not anything to write home about, but executives believe the company will improve in this area going forward.
However, it's not all encouraging news. The experiences segment, which is where results for parks, cruises, and consumer products are included, is facing some challenges. Revenue was up just 2% in Q3, with operating income down 3%. "The demand moderation we saw in our domestic businesses in Q3 could impact the next few quarters," the press release reads.
I will adopt a more upbeat perspective as it pertains to the long term. My view is that the experiences segment is a lucrative one that's essential to Disney's competitive standing. That's why the company is planning to invest $60 billion over the next decade to bolster its offerings here, forcing my confidence that the segment will be stronger in the future.
Disney's valuation
The market hates uncertainty. That's the best word to describe Disney's situation over the past few years as the media landscape shifts to streaming.
Consequently, Disney shares are cheap. They trade at a forward price-to-earnings (P/E) ratio of 17 based on fiscal 2025's consensus earnings per share estimate. If you believe the bottom line will expand meaningfully in the years ahead, like I do, then valuation is only going to get more attractive the further out you look. For what it's worth, the S&P 500 trades at a forward P/E multiple of over 23, so Disney goes for a significant discount to the overall market.
In my opinion, that valuation creates a wonderful opportunity to buy shares. Investors can purchase a business that has an economic moat that discourages new entrants from coming in and adds durability over the long term.
Disney's intellectual property, including its characters, storylines, and franchises, many of which were created decades ago, holds a special place in the minds and hearts of consumers across the globe. I think it's impossible for any business to match or replace this type of position.
Of course, investors looking to buy the stock must have the patience to wait for solid improvements to happen, particularly around the view that earnings will soar. However, I believe that over the next three to five years, Disney will prove to be a successful investment.
Should you invest $1,000 in Walt Disney right now?
Before you buy stock in Walt Disney, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Walt Disney wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $731,449!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Neil Patel and his clients have positions in Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
