If We’re Picking Favorites, I Choose Walt Disney Co

If we are picking favorites, I choose Walt Disney Co (NYSE:DIS).

The company has the best amusement parks in the world. It is also behind the best movies in the world, including every good superhero and animated film. Disney is also responsible for distributing the best sports content in the world, both live and recorded.

But Walt Disney stock hasn’t been the best stock in the world. Far from it. While the S&P 500 has rallied nearly 20% over the past year, DIS stock has risen less than 5%.

Why? Cord-cutting. As people cut the cord on cable, Disney’s channels (like ESPN, ABC and Disney Channel) are losing subscribers. Advertising and subscription revenues are going down. Disney’s Media Networks segment, which is responsible for just under half of Disney’s operating profits, is getting killed.

But these are all near-term issues. Between ESPN, Pixar, Marvel and LucasArts, Disney is behind the best and most in-demand content in the world. The company just currently finds itself on the wrong side of shifting media consumption behavior.

Starting in 2018, though, Disney will start adjusting to this shift with the launch of its ESPN Plus platform. In 2019, Disney will be entirely on the right side of this shift with the launch of its own Disney-branded Netflix, Inc. (NASDAQ:NFLX) style service.

Despite these huge growth catalysts on the horizon, Walt Disney stock continues to trade at a discount to its trailing five-year average valuation. That makes no sense, especially considering the market is trading at a huge premium to its trailing five-year average valuation.

Consequently, now looks like the time to load up on Walt Disney stock, while it’s still cheap ahead of major growth catalysts which should propel shares markedly higher.

Expect Big Things From Disney in 2019

I am particularly bullish on the Disney-branded streaming service set to launch in 2019.

To understand why, let’s take a look at Pixar’s latest big hit, Coco. Coco was not only exceptionally well-received by consumers (a record 9.0 rating on IMDb), but also raked in $71 million in its five-day Thanksgiving debut. That is the fourth biggest five-day Thanksgiving debut ever.

In fact, Disney is responsible for 14 of the top 18 Thanksgiving openings ever, including 10 of the top 11.

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Moreover, Coco was a Pixar original, meaning it was an original story line with new characters and not just a new story line on recycled characters. Pixar originals have actually done quite well recently, bringing in roughly the same amount of box office revenue as sequels.

Put it all together, and it’s easy to see that Pixar makes some of the most compelling content in the world, both through sequels and originals.

That is just one part of Disney’s robust content portfolio. There is also the whole Marvel Cinematic Universe, all the Star Wars movies, all of the live-action films like Beauty and the Beast and so much more.

All together, DIS is responsible for the top three grossing films in 2016, three of the top four grossing films in 2015, and two of the top four grossing films in 2014.

Now, Disney is going to take all those popular movies and wrap them into one Netflix-style offering that will be priced substantially lower than Netflix.

The writing is already on the wall. Disney’s streaming service, complete with the most compelling content portfolio at a compelling price, will have huge demand.

Bottom Line on Walt Disney Stock

Disney is behind the best amusement parks, sports content, and thematic content in the world.

At same point, all those valuable assets will roll into Walt Disney stock heading materially higher.

I think that happens over the next one to two years as Disney fixes its cord-cutting problem by transforming into a formidable Netflix competitor. Loading up now at a discount seems like the best strategy.

As of this writing, Luke Lango was long DIS and NFLX.

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