3 Reasons To Bet On Disney

The strength of the company's brands alone is enough to make the stock a buy, but I've got two additional reasons the Mouse trumps both Comcast Corp. and Time Warner.

Jan 19, 2014 at 9:00AM

If your portfolio needs some growth and income, what better way to get it than by adding some mouse power? Walt Disney (NYSE:DIS) is a company that is extremely well known, but the company should provide strong returns for investors over the next several years. Though the stock is up roughly 40% in the last 12 months, this should be just the start of a multi-year growth cycle for the company.

Well known and under appreciated
The first reason to mouse power your portfolio is while Disney's Parks & Resorts business is probably the company's most well-known business, it might also be the most under appreciated. In fact, you could argue that one of Disney's greatest strengths is the company's reliance on this business.

Compared to Disney's competitors like Comcast's (NASDAQ:CMCSA) NBC Universal business, or Time Warner (NYSE:TWX), Disney gets significantly more revenue from its parks than its peers.

In the current quarter, Disney generated 32% of its revenue from Parks & Resorts. By comparison, Comcast got just 4% of its revenue from parks, and Time Warner's Warner Bros. Movie World is but a footnote in the company's business.

The reason this distinction is so important is, Disney's parks business grew revenue by 8% on a year-over-year basis. The company has reported for the last several quarters that the parks business grew because of increased guest attendance and spending. Comcast also reported strength in its parks business, and the recovery in the economy should continue to drive positive results in the near term.

A lineup few can match
The second reason to choose Disney is the company's studio division. Though Disney's Studio Entertainment business represented only 13% of the company's revenue stream, a strong movie lineup also benefits the company's Consumer Products business as well.

If you are looking for a strong movie release schedule, investors need to look away from Comcast at least in 2014. Arguably the company's strongest release this year could be Dumb and Dumber To. However, given that NBCUniversal had the benefit of Despicable Me 2 last year, comparisons will be difficult.

Time Warner's Warner Bros. division has three very strong movies coming out in Godzilla, 300: Rise of an Empire, and The Hobbit: There and Back Again. However, with tough comparisons to The Hobbit: The Desolation of Smaug, Man of Steel, The Hangover III, and others, huge growth from Time Warner would be a surprise.

Disney, on the other hand, has huge releases coming out in 2014 that should provide growth. Between Disney and Marvel, movies like National Treasure 3, Muppets: Most Wanted, Planes: Fire & Rescue, Captain America: Winter Soldier, and Guardians of the Galaxy, are all due out in 2014. Since currently 13% of Disney's revenue is from Studio Entertainment and nearly 9% more comes from Consumer Products, these strong movies should drive not only good film results, but also strong sales from products connected to these films.

This is no surprise
Given the strength of the company's Parks & Resorts, Studio Entertainment, and Consumer Products, it should come as no surprise that Disney also sports strong free cash flow. Disney's strong free cash flow is the third reason to choose the stock. Among its peers, only Comcast generated more core free cash flow (net income + depreciation-capital expenditures) in the last nine months than its peers.

In the last nine months, Comcast generated over $6 billion in core free cash flow, while it took Disney 12 months to achieve this same result. By comparison, Time Warner generated just over $3 billion in the last nine months.

While Disney generates a yield of just over 1%, the company's free cash flow payout is just under 22%. It's true that Comcast and Time Warner pay higher yields and have similar payout ratios, but Disney's brand catalog seems more impressive.

With businesses like Pixar, Lucas Films, Marvel, and Disney all under the same roof, it's difficult for any competitor to match the reach and breadth of Disney's businesses. Investors looking for strong returns should follow the power of the mouse.

The Motley Fool's Top Stock for 2014
There’s a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Chad Henage owns shares of Comcast. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information