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Technicals and Fundamentals Point up for Disney
04/19/2019 5:00 am EST
Although best known as an expert on gold, Omar Ayales occasionally recommends stocks that fall outside of the commodities sector. Here, the editor of GCRU Weekly Trading Service looks at Disney (DIS).
The market's recent pattern is very typical of a head and shoulders bottom. Many argue this patterns must come after a long drawn out bear market or decline. But the reality is the price action is what’s telling and the move is indicative of a bottom with signs of renewed strength.
Both the Industrials and the Transports have broken above similar bullish patterns. Both breakout rises have also triggered a Dow Theory bull market confirmation.
We must be open to the idea that renewed strength in stocks could mean renewed optimism in business expectations at different levels, domestically in the U.S. and globally as the outlook for emerging markets continues to trend up.
There are many stocks we’ve been following since the washout last year. We’ve been seeing how they’ve reacted to stock market weakness and checked out some fundamentals. I really like Disney.
Ever since it took over 21 Century Fox last year on a deal valued at over 70 billion, it’s been working to position itself as the ultimate content producing power house — watch out Netflix (NFLX).
However, certain announcements regarding its CEO Bob Iger and the decline in overall stock market made me look at the development of price movement further.
We’ve also reviewed the technicals. DIS confirmed support at $100 and had consolidated near $115. Then just this week, DIS broke above the top side of a ascending triangle and exploded to $130+. The rise was coincidently on the news of DIS launching its new streaming service called Disney Plus.
Although DIS and Netflix’s market cap are not too far from each other, DIS’s annual income of nearly $13 billion (sales of $60 billion and assets of $100 billion) can’t compare to Netflix’s $1 billion in income ($15 billion in sales and $26 billion in assets).
Even with this recent upsurge, DIS’s price to book ratio is 3.5 times, as opposed to Netflix’s 29.26 times. DIS’s P/E ratio is 18.50 against Netflix’s 131.02.
Netflix’s value is solely based on its streaming service, while DIS streaming service is only now starting, with some of the most sought out content in the world.
Currently, 100% of DIS income is thru other means such as licensing, park entrance fees, food and beverage, real estate, merchandizing among others.
Because of this and many other things, I believe DIS is one of the most undervalued companies out there. It’s also one of those companies that won’t likely decline as hard as others with high valuations.
Buy some at market if you’re looking to keep for the long term. Traders should wait for a pull back to the breakout level below $125 to buy — and then buy more on weakness. Place stops at a 2-day close below $109.
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