It's been a year since I pitted Disney (DIS 1.24%) against Time Warner parent AT&T (T +0.33%), and the real shocker here is that it's been a hearty 2019 for the two historically sleepy blue chips. Between the wildly successful launch of Disney+ and activists lighting a fire under Ma Bell, it's been fairly rewarding to own either of the two stocks.
Disney stock has soared 37% in 2019, and it's not even the biggest gainer. AT&T investors have experienced a 44% return this year. As hot as the market has been in 2019, both stocks are handily smoking the market. Push the starting line back to Christmas Eve of last year -- the day that I sided with AT&T over Disney -- and the race is a dead heat, with both stocks up a whopping 50%. You couldn't have gone wrong with either stock at that point, but now let's size up the two investments to see which one will be the better call in 2020.
Image source: Disney.
It's a small world
Putting Disney and AT&T in the same ring a couple of years ago probably didn't make a lot of sense. They were blue chips and Dividend Aristocrats, but that was pretty much all they had in common. However, when AT&T closed on the $110 billion deal for Time Warner in 2018, it did make things more interesting. Disney and AT&T are now both media moguls, and if you're a comic book buff, we're basically pairing up Marvel (Disney) with DC Comics (AT&T). Between last month's launch of Disney+ and the HBO Max debut in five months, both companies will also be competing with two of the most prolific streaming services.
I was a shareholder of both stocks when I wrote last year's column, and that continues to be the case. I did give the nod to AT&T last Christmas, and let's quickly revisit that decision.
"Disney has the ingredients in place to continue to be a force in family entertainment, but AT&T's low valuation and ridiculous yield won't last," I concluded last year. "AT&T should outperform Disney as an investment in the year ahead."
Fast-forward to now, and AT&T isn't exactly overvalued, but it's not the screaming bargain it was at the time. The rapidly appreciating stock has shaved the yield from 7.2% to 5.4%, and it's no longer fetching a single-digit earnings multiple. Disney also isn't cheap after a similar 50% surge over the past year, but its bullish thesis wasn't hanging on high payouts and a low P/E ratio.
Neither company is perfect. AT&T's wireless business continues to grow, but things are still messy with its fading satellite television and legacy wireless businesses. Disney is riding high with the initial success of Disney+, but it remains to be seen how much of that new audience will come at the expense of the money it was generating for carriage rights through cable and satellite television providers. We can also say the same thing about the impact that HBO Max will have on AT&T's DIRECTV arm.
I'm going to go with Disney this time around, even though I feel that once again, both stocks have the right ingredients to continue beating the market. Disney is simply playing at a higher level than other multimedia behemoths. It's the studio behind the four highest-grossing movies released this year, and that will expand to six by the time Frozen II and Star Wars: The Rise of Skywalker play out over the holidays. It continues to operate the world's most-visited theme parks, and it just raised the bar in what an attraction can achieve with its new Rise of the Resistance ride at Disney World. The sum of Disney's parts is just more exciting than AT&T right now and more worthy of a market premium.
