Despite its pullback Friday, the S&P 500 continues
marching to new all-time highs and is just a stone's throw away
from the psychologically significant 2,000 level.
In this positive market environment, it is not difficult to
find stocks that have moved higher. Finding the real winners,
however, involves spotting stocks that have outperformed the
strong market and have clear fundamental reasons for continuing
to do so.
That leads me to
The Walt Disney Co. (NYSE:
. This blue-chip stock has significantly outperformed the S&P
500 over the past three years. (Indeed, my colleague Marshall
Hargrave thinks the company could do the same over the next
While the broader market bottomed in early 2009, it wasn't
until October 2011 when the index began its current almost
straight-line advance. From its October 2011 lows near 1,075, the
S&P 500 is up 85%. DIS has soared more than 200% during that
time. As long as the market keeps rising, DIS should at least
There are several fundamental reasons why I think DIS could
continue to outperform the index.
The company operates in five segments, with consumer products
representing the fastest growing one. This unit makes money by
licensing popular characters like Mickey Mouse and Thor,
publishing best-selling books and apps, and hawking merchandise
in stores. Between 2009 and 2013, revenue in this segment
increased 46%, to $3.5 billion. With analysts projecting higher
margins for licensing and royalties, solid growth is
Disney is perhaps best known for its parks and resorts
segment, which includes theme park admission sales, hotel room
bookings, vacation rentals and cruise packages. Since 2009, this
segment's revenue has grown 32%, to $14.1 billion.
The recently introduced MagicBands should be a revenue
booster. MagicBands are credit card-linked wearable wrist straps
that allow guests to easily swipe purchases -- and spend more
money. In the first quarter, guest spending per capita rose 8%
from the year-earlier period, in part due to the beta testing of
Disney's media networks segment, which includes broadcast TV,
cable TV and radio network operations, saw revenue increase 26%,
to $20.4 billion, between 2009 and 2013.
It holds a primary stake in popular streaming site Hulu. And
future growth should come from the recently announced partnership
. The two companies just signed a multi-year licensing deal
allowing Netflix to stream Disney's live-action and animated
films in Canada.
Rounding out the company's segments are the studio
entertainment and interactive divisions. The studio entertainment
segment produces motion pictures, videos, music and stage plays.
The bulk of money comes from film distribution, but revenue has
been flat, around $6 billion, in the past five years. The
interactive segment, Disney's smallest division, which develops
games and interactive content, is growing but has yet to turn a
With strong revenue growth in at least three segments, the
stock should continue to power ahead as rising revenues translate
into growing earnings.
Since the October 2011 low near $28, the stock has been in a
major uptrend. Shares nearly doubled in less than a year, rising
to a September 2012 high above $53, before pulling back.
DIS hit a low around $46 in November of that year, but by May
2013, shares had risen nearly 50% to a peak just under $68. The
stock digested this advance by moving sideways and holding key
support near $60.
In November, shares again broke resistance, climbing to a high
above $83 in March. That level then was established as
resistance, with DIS unsuccessfully challenging it several times
between February and May.
In May, the stock managed to push past this level, bullishly
breaking out of a small ascending triangle . The triangle was
formed by the intersection of the major uptrend line and $83.65
resistance, which now marks important support.
Since breaking out of the triangle, shares hit an all-time
high at $87.63 on July 16, and are currently trading slightly
below this level.
Analysts following the stock project it could reach a target
as high as $100. To minimize downside risk, I suggest taking a
position once the stock breaks $87.63 resistance.
For the upcoming third quarter, scheduled to be reported Aug.
5, analysts project revenue will increase 5% year over year to
$12.2 billion. Earnings are expected to jump 14%, to $1.17 per
For the full year, revenue is estimated to rise 8%, to $48.5
billion. And 2014 earnings per share are expected to increase
24%, to $4.20.
Management has said it will consider raising dividends or
share buybacks. It currently pays a dividend of $0.86 for a 1%
Action to Take -->
-- Buy DIS on a break above $87.63
-- Set stop-loss at $83.59, slightly below current support
-- Set price target at $99.95 for a potential 14% gain by late
This article was originally published at
Money-Tripling Blue Chip is My Top Pick for
This Bull Market
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