When You Wish Upon a Stock

04/09/2009 1:00 pm EST


George Putnam

Editor, The Turnaround Letter

George Putnam, editor of The Turnaround Letter, says Disney is a premier entertainment company selling at a bargain price.

Tracing its roots back to Walt Disney’s first animation shop in 1923, The Walt Disney Company (NYSE: DIS) is arguably the most prominent entertainment operation in the world today. It controls theme parks, such as Disneyland and Disney World; television networks, including ABC and ESPN; movie studios, and character-themed consumer products.

After many years of heady growth, the company stumbled a bit in the late 1990s. It recovered shortly thereafter, but the stock was hit hard again in the 2000-2002 market downturn. It rebounded nicely from 2003 to 2007 before falling off sharply once more when the economy began to soften last year.

The Disney name is one of the world’s most recognized brands across all of its major business segments. While the company’s financial results have been hurt temporarily by the global economic weakness, we believe it is well positioned to prosper again when economic conditions improve.

The theme park business has softened with the economy, but its long-term prospects remain strong. While the recession may be forcing some families to settle for cheaper entertainment closer to home, the allure of Disney’s theme parks [makes them] the ultimate family destination. 

Moreover, as some lesser competitors, such as Six Flags (NYSE: SIX), struggle with financial problems, the Disney parks enjoy strong financial backing. In addition, there is still good expansion potential outside the US, particularly in Asia and other rapidly growing regions.

While many television networks and stations are currently suffering, the Disney properties are faring better. Its cable networks, such as ESPN and the Disney Channel, are still able to demand high affiliate fees, and so they are less vulnerable to any weakness in advertising.

Many media experts [believe] that “content is king,” and Disney is the king of content. It is extremely skillful at wringing additional profits from both new and venerable media properties. For example, when Disney brings out the Toy Story 3movie in 2010, it is expected to re-release Toy Story and Toy Story 2in 3-D.

Moreover, the release of the new film should reinvigorate the sales of merchandise based on the Toy Story characters. Disney can do this over and over again with all of its properties, reaching as far back as its first animated feature, Snow White,[which was] originally released in 1937.

We believe that the current market volatility and economic weakness provide an opportunity to buy into a preeminent global brand at a temporarily depressed price. We recommend buying Disney stock up to $26. (It closed above $19 Wednesday—Editor.)

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