By almost any measure, Walt Disney (DIS -0.70%) is the superior company. The media giant's all-in bet on streaming is brilliant, in retrospect, now that its Disney+ streaming service boasts more than 100 million subscribers less than a year and a half after its launch.
Meanwhile, the company is enjoying its choice to send new films to Disney+, or to theaters, or both. Its theme parks are still stymied by capacity rules intended to curb the continued spread of COVID-19, but even those rules are relaxing now. Disney World is reportedly booked to its maximum-allowed capacity for this year's spring break weeks, which is considerably more business than it was able to generate a year ago when pandemic fears were at their peak.
End result? It's already on the road to recovery, and analysts expect next year's profits to more than double the earnings Disney is expected to generate this year.
If there's only room for one new stock pick in your portfolio, however, a much smaller and struggling fuboTV (FUBO -1.86%) is actually the better choice. Let's take a look at why.
Walt Disney is peaking while fuboTV is bottoming
FuboTV is certainly doing its part to shake up the cable television media market, adding another 93,000 subscribers to its live-streaming alternative to conventional cable service last quarter. It's now got 548,000 of these customers that don't want to give up cable but do want to lower their monthly bill.
But it's still losing money and isn't expected to swing to a profit by next year. There's also the not-so-small matter that fuboTV as we know it -- and the virtual cable market it operates in -- are both new. Predicting their plausible futures isn't easy.
That's in contrast with Disney, which not only has a multi-decade history but is in businesses that are very well-established. Movies, amusement parks, and hotels are anything but new, and even subscription-based streaming has been around since Netflix took the plunge in 2007.
Investors understand how to evaluate and handicap these different businesses. They've had some experience doing so. And as was noted, Disney is on the road to fiscal recovery.
There's a matter at hand that's too big for investors to ignore about both of these stocks, though. That is, Disney shares are wildly overvalued thanks to their 146% run-up from last March's low (most of which has come in the past six months), while fuboTV shares are down 30% from January's high despite the company's clear progress in the meantime.
Both trends are potentially poised for a reversal.
FuboTV is on the right track
Don't misread the message. Disney is certainly the safer and stabler company.
Stock-picking, however, is ultimately about balancing risk and reward in a way that makes the most sense for each investor at any given time.
This is where Disney is pushing its pricing limits, with shares valued at 95 times this year's projected profits and 40 times next year's earnings estimates. It's not outrageous, but for next year's expected 25% revenue improvement it is unusually rich, and certainly well above the stock's long-term trailing price-to-earnings average in the lower 20s.
That's also a 2022 earnings outlook founded on the assumption that the world will return to normal in the foreseeable future, and that Disney's streaming presence will maintain unfettered growth. Maybe it will. But maybe it won't.
Admittedly, fuboTV's lack of profits makes it a tough name to measure, but the company's sales and income trajectories speak volumes. Analysts are modeling more than a doubling of 2020's top line this year, and while that growth should slow to 63% next year, that progress is expected to cut the company's likely 2021 loss in more than half. Things get even better further down the road.
Losses in the meantime are (obviously) less than ideal. But you ultimately own companies for where they're going, and you buy their stocks when the market is underestimating rather than overestimating that company's prospects. FuboTV's risk to prospective shareholders is still pretty high, but at its current price, so is the reward. Disney is a lower-risk prospect, but at its elevated price, there doesn't appear to be a lot of upside left to unleash in the foreseeable future.
Now, but not always
This is only a temporary situation, of course, resolvable by a rally from fuboTV shares and/or a pullback from Disney stock. FuboTV's edge and Disney's valuation disadvantage are also likely to shift gradually, rather than change in an instant. Moreover, remember they're still two different kinds of investments, and perhaps most importantly, know that fuboTV isn't bulletproof, nor is Disney fatally flawed. Keep things in perspective.
There's nothing wrong with taking advantage of the extreme swings in a stock's price, though, even if that means you're steering clear of a dangerously big rally.