Disney: Rock Solid Value

02/03/2016 10:00 am EST

Focus: STOCKS

Russ Kaplan, editor of the Heartland Advisor, follows a Ben Graham-style value approach. In line with his multi-year focus, he considers the recent pullback in high quality stocks as an opportunity to buy, including this favorite, a long-standing leader in media and entertainment

Steven Halpern: Our special guest today is Russ Kaplan, editor of Heartland Adviser. How are you doing today, Russ?

Russ Kaplan: Just fine, thank you.

Steven Halpern: Thank you for taking the time. As a long-term value investor, you’re not particularly disturbed by the market’s poor action lately. In fact, you say that this is a time to be looking for buying opportunities among high quality stocks. Could you expand on that?

Russ Kaplan:  Yes. I’m a long-term investor. You know, like Benjamin Graham said in the short-term it’s a voting machine; in the long-term it’s a weighing machine, and you know, every time we’ve had a correction we have come out of it and gone on to new highs, so this is a wonderful time to be buying. All kinds of companies meet my value criteria.

Steven Halpern:  Now, with so many others running for the exits, you recently said that you feel like a kid in a candy store. Could you explain the disparity between Wall Street’s short sighted focus and your willingness to keep your eye on the long-term?

Russ Kaplan:  Yes, I certainly keep my eye on the long-term. I tell my clients you should commit to being in a particular stock like about three to five years.  I’m not interested in the day to day fluctuations, and if we have a good company that’s gone down in price, we either hold on or we buy even more.

Steven Halpern:  You noted that among the stocks that have fallen in recent months are some particularly financially solid companies with great management and one favorite that you count among that group is Disney (DIS).  What’s the bullish case here and perhaps you could touch on some of the recent news related to the movie division.

Russ Kaplan:  Well, their Star Wars was a record breaker.  It’s got several divisions. They’re worried about ESPN but they’ve got eight television stations. Everything is doing well.  They’ve been in business since 1923.  

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They’re run by president Bob Iger who is a terrific manager and owns 1,200,000 shares and when they first started there was nothing but black and white without sound and every technological invest-improvement they have been on top of.

Steven Halpern:  It’s interesting, just few people think of Disney from a technology perspective, yet you suggested they’ve really been at the forefront of innovation for all these decades.

Russ Kaplan:  Yes, they’ve adapted to every new type of invention there is.

Steven Halpern:  Now, despite what you call rock solid fundamentals behind the firm, you pointed out that Wall Street analysts are overly focused on some potential headwinds, particularly the loss of subscribers at the ESPN division. Could you explain what’s been going on there and why you’re willing to take a different approach than Wall Street right now?

Russ Kaplan:  That’s just one small part of Disney. Their other divisions are doing great.  We all know about Star Wars.  The Disney parks are doing well all over the world and they’re performing well.  

They had an 18.28% return on equity and from a Buffett perspective, what’s important is they’re a brand.  Nobody else can have a Snow White or a Pinocchio.

They’ve got a lot of things that they’re the only one in. They’re unique. They have what Buffett calls a moat and the analysts are just looking at one tiny part of it; whereas, I look at the whole of Disney.

Steven Halpern:  So, is it safe to say, in summary, that you would welcome any weakness in the stock as an opportunity for a value investor to either start a new position or add to an existing position in the stock?

Russ Kaplan:  Yes. We’ve had our best buys during corrections like this. This is the same and I’m still buying Disney. I think it’s a great buy. In a few years I think we’ll all be happy that we did buy Disney.

Steven Halpern:  Again, our guest is Russ Kaplan of Heartland Adviser.  Thank you so much for your time today.

Russ Kaplan:  Always a pleasure.

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