The efforts to stem the spread of COVID-19 around the globe have adversely affected even the most elite companies, but many of those top performers are using their powerful positions and large cash coffers to adjust to the times and maintain their bottom lines.

Both Disney (NYSE:DIS) and Coca-Cola (NYSE:KO) are giants in their respective industries that were pummeled by COVID-19 and are making big moves to rearrange operations and get back to growth. While they enact these efforts, Disney stock is down about 14% year to date and Coca-Cola stock is down about 9.4%, and both are trailing the S&P 500 index, which is up about 6.6% year to date.

But these declines could present hidden opportunities for the long-term-thinking investor. Which of these somewhat beaten-down stocks is the better buy right now?

Three young employees wearing masks at Disney World, with the famous castle in the background.

Image source: The Walt Disney Company.

Quarterly reports show hard hits and efforts at recovery

Disney is still the top dog for media and entertainment despite a considerable drop in revenue in the fiscal 2020 third quarter (which ended June 27 and covered most of the COVID-19 lockdowns and restrictions). Most of the revenue dip came from the mandated park closures during the quarter. Parks, experiences, and products was historically the largest revenue-generating segment in Disney's operations, but a significant percentage of its sales were wiped out when nearly all its parks were closed from mid-March to mid-July, falling 85% in the third quarter and accounting for most of the overall 42% drop in revenue.

While some parks have reopened, they are operating with limited capacity, and others remain closed with no known reopening date set. Other experiences, such as cruises, also remain closed indefinitely. Sales from licensed products also decreased, as did advertising revenue from TV networks such as ABC and ESPN. Disney also had to cancel or delay theatrical releases, or debut some productions on streaming services instead, reducing their potential overall revenue production.

Streaming was the bright spot in the third quarter as home entertainment took center stage. Disney launched its Disney+ streaming site in November 2019, and subscribers have already surpassed 60 million. Between its three subscription services -- Disney+, ESPN+, and Hulu -- the company has more than 100 million subscribers, which it didn't expect to have until 2024. 

Coca-Cola's second quarter, which ended June 26, wasn't much better, with a 28% year-over-year revenue drop. The company's on-the-go business, which provides beverages to restaurants. theaters, and other entertainment venues (including some Disney parks) and makes up almost half of its total revenue, was seriously compromised by stay-at-home orders.

Concentrate sales decreased by 22% and drove down overall revenue. Concentrate sales sequentially improved, however, as a 25% global unit-case volume decline in April became a 10% decline by June. The company said in a statement that the away-from-home trends correlate with the easing of lockdowns, so those should continue to improve as the world eases lockdown restrictions.

Recent business changes by both suggest a new focus

Disney made some immediate changes to try to boost sales, such as streaming new releases of films it had planned to release theatrically -- a move that appears to have had some success. For instance, Disney experimented with offering the film Mulan to Disney+ subscribers for a $29.99 premium over the normal monthly subscription price. The revenue it gained from that release did not need to be shared with theaters. It made efforts to keep ESPN viewers happy (despite the lack of live sporting events on its networks) by early releasing a 10-part documentary on former NBA star Michael Jordan and the Chicago Bulls called The Last Dance. Recently, live sports have started to return to the networks, and ESPN has again been broadcasting games, including the recently completed NBA season. 

The entertainment giant produced seven of the top 10-grossing films in 2019, and Disney is refocusing the talent that produced those films toward steaming in 2020 to benefit from the trending interest. It also has an extensive media library, which it's using to launch another streaming effort called Star, which will have a more international focus (Disney already owns a popular streaming service in India called Hotstar). It will provide general entertainment from its various production studios to an international audience under the marketing and tech umbrella of Disney+. This is another way to engage customers in the pandemic climate and widen its reach globally.

Four young people drinking cola together.

Image source: Getty Images.

Coca-Cola management responded to the financial hit brought on by the pandemic by making a course correction in its operations and tightening its focus on its key brands to hopefully spur higher sales. It focused on promoting carbonated brands in China, for example, and grew sales there by 14%. It shut down the Odwalla juice brand (which has been struggling) in July. 

Coke CEO James Quincey said that out of the 400 master brands it produces, more than half are only available in single countries and that 50%-plus of brands account for only 2% of total sales. Quincey said the company will be reevaluating those 200-plus brands and potentially dropping many of them. The recent discontinuation of the Tab brand of diet soda in the U.S. is an example of this streamlining. He affirmed the company's commitment to using its resources toward scalable, global brands that can help drive efficiencies to reduce production costs and increase revenue.

Making changes for future growth

Disney announced a restructuring this month that concentrates its media into three distinct groups: studios, general entertainment, and sports. The company also separates the management of media production and media distribution. In making its announcement about the changes, CEO Bob Chapek noted the untapped opportunities in direct-to-consumer sales. The new structure is meant to harness some of that potential for Disney.

Coca-Cola in August announced its own restructuring plan in the face of COVID-19 troubles. The new structure features nine operating units (instead of 17) that work with five marketing teams. The move helps streamline the company's vast product line and focus on what works in different regions. Coca-Cola, which has only 20% of market share in many developed countries, still sees plenty of opportunity for future growth, with the non-alcoholic, ready-to-drink category growing 4.3% annually.

Which is the better buy?

Disney stock has outperformed Coca-Cola's over the past three years, returning 30% price gains over that time versus Coke's 7% three-year gain. At the same time, Coca-Cola has provided a higher-yielding dividend (3.26% yield for Coke versus 1.42% for Disney). Disney's stock trades at 34 times trailing 12-month earnings, while Coca-Cola stock is trading at a more reasonable 24 times trailing 12-month earnings.

These are both great companies that have the resources and management to bounce back from the coronavirus-induced downturn and provide value for investors. But Disney's asset library, new opportunities, and diversified business would seem to justify its higher P/E ratio and provide sound reasoning to says it is the better buy today.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.