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TV Sports to Star Wars: A Look at Disney
11/13/2015 10:00 am EST
Focused on long-term growth of capital and income, Briton Ryle, editor of The Wealth Advisory, seeks great companies with strong fundamentals. Here, he discusses the latest featured recommendation, a company he considers the "best media stock out there."
Steven Halpern: Our special guest today is Briton Ryle, editor of the Wealth Advisory. How are you doing today, Brit?
Briton Ryle: Great Steve, how are you?
Steven Halpern: Very good. Now you’re a big fan of high quality blue chip stocks, often ones that you’re comfortable owning for years. Could you tell our listeners a little about the investing strategy behind the wealth advisory?
Briton Ryle: Sure, Wealth Advisory, I focus on dividend and income stocks because you’ll find over time that most of your gains are going to come from dividends and rising dividends and I really take two strategies for finding companies for investments.
One starts with finding just great companies, companies that are executing well, have great market share and are perceived well by their customers.
Examples would be Starbucks (SBUX), which we bought three years ago, done quite well with, just a fantastic company and the other way that I go about investing is identifying great trends and right now I would point at maybe the sort of explosion of mobile data.
For instance, we’ve got a couple dividend paying tech stocks that are servicing the expansion of mobile data built out of networks and that type of thing and that’s also a pretty explosive long-term trend that you can do quite well with.
Steven Halpern: Now your latest feature stock recommendation is Walt Disney (DIS) and an underlying seems here is what you referred to as the US consumer demand equation. Could you explain what you mean by that?
Briton Ryle: Well, sure. One thing when you’re investing, obviously, you want some stability and some reliability in your chosen investment and the American consumer is one of the sorts of island of stability in the global economy right now. China’s economy is a bit dicey. Emerging markets are really tough.
Commodity prices are getting killed. There’s a lot of pressure on manufacturing and industrial and so one of the things that you can really count on is how people spend their money and for the American consumer that’s going to be entertainment and that type of thing.
I just feel as though the American consumers really sort of just imagine the stability in the global economy and if you can focus on what we’re spending our money on, that’s really the place to be.
I don’t want to try to play global trends that may or may not work out because so many emerging markets are straddled with debt and China’s really kind of a hard one to figure out.|pagebreak|
Not only do you a have sort of an emergent consumer in there, but you also have companies that may not be completely reliable all the time and so I just feel as though the United States is the place to be for the foreseeable future.
We have good demographics growth over the 20 or so years the European population is actually going to be in decline so the United States for stability, reliability, and hopefully even some upside if we ever get some wage growth going.
Steven Halpern: Now why would...your search for long-term enduring trends, Disney has been an industry leader, you point out for 92 years. Yet despite this long history, you still expect significant growth in the years ahead. Could you highlight some of the main drivers behind this optimistic forecast?
Briton Ryle: Yes, and I would just start off, I’d like to point out that Disney falls under my category of really great company. They’re just a very well run operation. Well diversified between their various entertainment segments, they’ve got the amusement parks, they’ve got the movies, and they’ve got the television content, and then merchandising.
The TV and entertainment division is the biggest, about 45% of their revenues. That includes ABC, ESPN, A&E, the Disney Channel, and that’s an interesting one.
That’s what people are really focused on these days because of the cord cutting that’s going on; people are moving away from cable providers like Comcast (CMCSA) and seeking out alternative providers like Hulu or Netflix (NFLX) to get their content in.
I actually feel as though, as a content provider, Disney is very well positioned to take advantage of whatever trends emerge there. In other words, their content is going to be very much in demand by whoever is providing it.
They have deals with Comcast for ESPN/Disney Channel, but they’re also licensing movies to Netflix so they’re going to be in a great position to leverage their content to whatever platform becomes the dominate one.
And I find this phase just fascinating because of the kind of monopolistic entity that Comcast is and then the ability of other content providers like Netflix to—sort of—fault their business model, offer consumers the cheaper way out, and again, I think Disney is just perfectly positioned to take advantage of that and remain on top no matter what happens.
Then there’s the park segment—Disney World/Disneyland—that’s their second biggest revenue producer, surprisingly, and they have a new theme park coming on in China sometime soon and that’s probably going to be a pretty good driver for them as well and probably one that’s not really well recognized by investors in general.
Steven Halpern: Now, in your latest research report you also point to film as an increasingly important part of the company. What’s on the horizon here?
Briton Ryle: Apparently they’ve got some movie coming out soon, light sabers and Jedis, I’m not really sure. Seriously, Star Wars is coming out in December and they’ve already been doing advanced ticket sales for that and we just bought some to take the kids last week and I expect sales for that to just be outrageous.
Almost undoubtedly, they’re going to set new box office records with Star Wars and if you look at their success with, like, the Marvel and Avengers series, Iron Man, I think they’ve shown that they can take sort of a single themed-movie, a single cast of characters and just extend it with really quality movies, new scenarios, new story lines.
And so I would think that they’re going to have the similar ability with Star Wars. Why can’t they just continue to make movies with this cast and this general story line years into the future?
The merchandising off Star Wars is probably going to be crazy. I would expect it’s going to be a pretty hot item for Christmas and going forward.
Then after that, you have licensing deals they’ve already signed on to get those movies on Netflix as they come out and so while that’s a great sort of headline driver, they still have the Avengers.
They still have the Marvel content, which they’ve been doing really well with. We’ll get more Captain Americas, more Thors, more Ironmen I’m sure, so I think they’re just really a sweet spot.
Steven Halpern: Now, from evaluation standpoint, you note that stock is not particularly cheap, but that doesn’t deter you from taking long-term investment positions. Could you explain your reasoning here?
Briton Ryle: Well, their trailing price/earnings ratio is about 20 and that’s definitely more expensive than many stocks that you can find. Apple’s (AAPL) trailing P/E is probably 12 or 13, something like that, but I think we with Disney I don’t have a problem with it because you’re paying up for the consistency and the reliability of the company’s execution.
They’re going to continue to make their money, they’re going to continue to raise their dividend, and from a quarter-to-quarter basis, sure earnings may come in light and they come in strong; not really concerned about that. The company is very healthy.
They’ve got plenty of cash, and again, you’re paying for pretty much the best media entertainment company out there, in my opinion. I think it probably deserves to trade with a little bit of a premium, and again, you’re going to get pretty consistent dividend heights from this company.
They’re going to be able to raise prices, they’re going to be able to meet market demand, they’re going to be able to continue make better and better deals for the delivery of their content.
Steven Halpern: Again, our guest is Briton Ryle of the Wealth Advisory. Thank you so much for your time today.
Briton Ryle: Oh sure, thanks Steve. Thanks for having me on.