The best holding period for a high-quality stock is forever, but that investing rule comes with a huge asterisk. Eternity is a very long time and it simply isn't possible to know how the stock market, the consumer market, the world economy, and many other aspects of a successful investment might change in the next century, the next 50 years, or even the next decade.
So when I say that you should own Walt Disney (DIS -2.31%) forever, I mean that you should be able to get a good night's sleep for years to come with the House of Mouse in your portfolio. No company is too large or too legendary to automatically stand the test of time, but Disney has a better shot than many at market-beating returns for the foreseeable future.
2020 sure turned out different than anyone had thought last year. The novel coronavirus took the wind out of Disney's billowing sails and the stock is underperforming the broader market year to date. I'll give you 11 reasons why Disney remains a fantastic stock for the long haul and a great buy at today's low prices. If you agree with at least some of my key points, you'll want to hit the "buy" button on Walt Disney today.
1. A cast of thousands
Nobody can match Disney's incredible content portfolio. The company owns Mickey Mouse, the Marvel universe, the Star Wars saga, and the Pixar catalog. That's just skimming the surface really briefly. From sidekicks and princesses to mermaids and stormtroopers, both kids and adults can find something to identify with and get passionate about in these teeming worlds of great storytelling.
2. Repeat, reuse, remake
The current melange of original and acquired content creation studios keeps cranking out more material, too. Some of it is brand new but other bits are new spins on older stories -- remakes, sequels, spin-offs, you name it. The recent glut of live-action remakes of classic Disney cartoons is a great example of this, and many of these movies have been tremendous successes. The Lion King remake of 2019 made $1.9 billion in worldwide box office receipts.
Every brand new title has the potential to start this type of long-term franchise. For every box office bomb like John Carter, you'll also get a surprise hit like Frozen that can support Disney World rides, themed hotel rooms, sequels, and spin-offs.
3. The happiest place on Earth
Some people connect this classic tag line with Disney World in Orlando, though the slogan was originally applied to Disneyland in California. Either way, Disney has successfully confiscated the very concept of happiness and made us all think of Mickey Mouse in relation to this important and positive word. If that's not branding power, I don't know what is.
4. With great branding power comes a great cash machine
Nobody knows how to monetize fictional content and the company's own brand quite like Disney. That's where the rest of the entertainment empire starts. Without the original stories, the company wouldn't have any theme parks, cruise ships, hotels, or licensed lunch boxes and T-shirts. The iconic nature of Disney's popular worlds and characters makes all of this cash creation easy.
5. The future is streaming
... and Disney is staking a serious claim to a slice of that rapidly developing market.
The Disney+ video-streaming service opened in November with more than 10 million subscribers signing on in the first week alone. The original plan was to reach at least 60 million users by 2024, but the COVID-19 pandemic accelerated the sign-up process to the point where that five-year goal was achieved in just eight months. Disney+ had 60.5 million subscribers in early August.
The company also has full control over the Hulu streaming platform with 35.5 million subscribers. The ESPN+ sports-streaming service adds another 8.5 million names. Disney can't compare to Netflix and its 193 million global subscribers quite yet, but the House of Mouse is establishing a strong foothold in the streaming market. This bundle of video-streaming operations will surely continue to grow over the years, especially if the traditional duopoly of premium cable TV channels and movie theaters keeps on losing its grip on the media-consumer market.
6. All of this adds up to a long-lived business advantage
Disney has been around for nearly a full century already and it's among a small handful of companies that I fully expect to stick around for at least another hundred years. This company grabs hold of consumers at an early age, instilling passion and loyalty that often lasts for decades. And then the kids grow up and watch their own children go through the same process, which brings the whole family back to Disneyland.
7. Patience is a virtue
The fact that you can buy Disney stock at nearly any price and rest easy for years and years gives the stock an almost unfair advantage. Compound returns over many years create serious wealth, and I don't mean just a handful of dollars.
If you bought $10,000 of Disney stock 10 years ago, you'd have $41,500 today. If you had made the same investment 30 years ago, you would have $158,000 by now. Reinvesting the dividends along the way into more Disney stock would boost that three-decade return even further:
Disney is equipped to stick around for many more decades, boosting its shareholder returns even further. It's the gift that keeps on giving.
8. Flexibility helps, too
Disney's management team is willing and able to adapt to changing business environments. The company's nimble handling of video-streaming services springs to mind as a fine example of this.
When digital streaming was a new and unproven idea, the company set up a multi-year deal with Netflix that allowed Disney to explore the ins and outs of streaming services without risking any of its own capital. When it turned out that streaming services were able to distribute content in an efficient and even profitable way, Disney hung up on Netflix and started up its own streaming platforms, based on acquired technology that was designed to stream baseball games. And the $71 billion buyout of 21st Century Fox unlocked many benefits, but boosting Disney's video-streaming fortunes was chief among them.
That's just one of many instances where Disney turned on a dime in order to adapt to a changing market. This ability is crucial to any business that wants to stick around for the very long haul.
9. COVID-19 can't stop the Mouse
Yes, the novel coronavirus has hurt Disney's business in many ways. Closing the theme parks for several months was no fun. Disney's cruise ships are still landlocked and ESPN had no live sports to air for a long time. And closing down movie theaters is incredibly uncomfortable for the movie studios. Disney was supposed to premiere several big-ticket titles over the spring and summer, including two guaranteed hits from Marvel and a live-action version of Mulan. Disney's third-quarter sales fell 42% year over year and earnings dropped from $1.35 to $0.08 per share.
That was most likely the rock-bottom trough of this crisis for Disney. You'll notice that even in this dark period, the company still delivered positive earnings.
Disney stacked up its cash coffers when the virus hit. The company had $14 billion of cash and $17 billion in undrawn revolving credit agreements in May. The House of Mouse prepared for a brutal and expensive fight but gladly settled for a slap on the wrist. The parks are back in operation, albeit under certain limitations and strict social distancing rules. ESPN has some live sports to air again. Things are getting back to normal, step by step and very slowly. A second wave of coronavirus lockdowns would cause some more pain to Disney and its shareholders, but even that would surely not be more than the company can handle.
10. The gravy train will keep rolling
A year ago, Disney stood at the threshold of launching Disney+. The company was armed with freshly acquired assets from 21st Century Fox. All of the five biggest box-office hits of 2019 came from Disney. Their ticket sales added up to a cool $8.2 billion -- not bad for a mere handful of films.
COVID-19 stopped Disney's growth in its tracks, as discussed above. The company was forced to halt its movie-making operations for several months and the theatrical distribution outlook remains shaky at best. But Disney will now premiere the delayed Mulan title directly on Disney+ with a $30 pay-per-view fee on top of the monthly subscription charges. The belated Marvel movies could end up taking a similar route.
For the most part, I'm thinking that much of the business Disney is missing in 2020 will come back through alternative distribution channels or simply pushed back to 2021 and beyond. The pent-up demand for theme park experiences and Disney-themed vacation packages should result in explosive sales when it's safe to fully open all the closed assets.
11. This is a great time to buy Disney stock
The S&P 500 has gained 21% over the last 52 weeks, including 8% in 2020. We Disney investors had to swallow a full-year loss of 2% and a year-to-date drop of 8% instead.
That opens up a great buying window for Disney shares. It's fair to slap a discount price tag on the stock in times of crisis and it's smart to take advantage of these low prices when it's clear that Disney should not only survive, but continue to thrive in the long run. Buy now, hold forever -- for all intents and purposes, anyway.