There's no doubt the market sell-off last year shook investor confidence in a way not seen since the 2008 market crash. After plunging more than 20% from its highs, the blue-chip-heavy S&P 500 index rebounded slightly but remains down around 16% since the beginning of 2022.
As with every bear market that has come before, this too shall pass. While there's no certainty where stocks will end up in 2023, betting on the futures of quality companies is a good bet.
If you have some extra cash to tuck away for at least five years, let's look at why Apple (AAPL 1.45%), Paramount Global (PARA +0.00%), and Walt Disney (DIS 2.40%) are relatively safe bets that could deliver satisfactory returns.
Apple
If you're looking for a solid long-term investment, look no further than Apple. The stock returned 232% over the past five years, and has already climbed another 14% year to date, pacing well ahead of the broader market.
NASDAQ: AAPL
Key Data Points
Apple designs high-quality products that drive consistent customer satisfaction scores and loyalty. It has remained true to Steve Jobs' original vision of tightly integrating hardware and software, which ultimately delivers an experience that customers love. This is why Apple more than doubled its installed base of devices over the last seven years to more than 2 billion.
The stock pulled back along with the broader market last year over concerns about supply shortages and how that would impact sales of the iPhone, which generates about half of Apple's revenue. Apple passed with flying colors, with management forecasting accelerating iPhone revenue in the quarter ending in March.
While it's possible a severe recession could pressure sales of iPhones, Apple's brand and growing cash resources make the business too strong to be knocked off course. Impressively, the company's free cash flow roughly doubled to around $100 billion over the last five years. The company is using these resources to not only fund new product development, but also reward shareholders through share repurchases and dividends. Investors can't go wrong holding Apple stock for the long haul.
Paramount Global
Paramount is one of the leading entertainment companies, owning the namesake Paramount Pictures studio, in addition to top TV networks like CBS, Comedy Central, and many others. But recent muted financial results due largely to the weak advertising market and investments to support the company's streaming services sent the stock down 26% over the last year, although it has rebounded 30% year to date.
NASDAQ: PARA
Key Data Points
Right now there are some negatives weighing on the stock. Most of all, Paramount's TV media revenue fell 7% year over year in the fourth quarter, which offset robust growth in the streaming and film segments. Moreover, Paramount reported a 63% decline in operating profit last year related to content spending to support the growth of Paramount+. This also shows what will send the stock back up.
Paramount will improve its operating profit and free cash flow, but meanwhile the company's market cap (total shares outstanding times the stock price) is sitting at less than five times its previous free cash flow peak from a few years ago. That's an incredible bargain for this top media franchise.
Data by YCharts
Free cash flow over the last four quarters was negative $139 million. But this has been part of a plan to launch Paramount+, which just completed a record quarter of subscriber gains. Management has stated that 2022 was an investment year, but the focus is to return to positive free cash flow in 2024, which is a catalyst.
The market has lost sight of the long-term intrinsic value of Paramount's entertainment properties. When you own an iconic film studio and a deep library of content, including the past year's biggest domestic box office hit with Top Gun: Maverick, good things will happen for patient investors.
As Paramount Global marches toward positive free cash flow over the next few years, the payoff could be very rewarding.
Walt Disney
Disney owns timeless characters and brands that have been entertaining people for decades. After a decade of great returns for shareholders, the stock didn't have the best outing last year, falling about 44%. But with Disney's streaming business continuing to gain new subscribers and the company's theme parks benefiting from a pickup in travel, the future looks bright for the Magic Kingdom.
NYSE: DIS
Key Data Points
Disney+ core subscriber count ended calendar 2023 at 104 million, excluding the international Hotstar service. That is tremendous growth since the service launched in 2019, thanks to a seemingly never-ending pipeline of Star Wars and Marvel content.
Meanwhile, Disney's theme parks are performing exceptionally well. The parks, experiences, and products segment reported a 21% year-over-year increase in revenue last quarter. Operating profits grew even faster at 25%, reflecting solid operating leverage and digital initiatives at the parks to improve the guest experience and lift margins.
Disney has a strong lineup of films and original series this year, including a new Indiana Jones film, The Little Mermaid, and season three of The Mandalorian on Disney+. The recent release of Avatar: The Way of Water was the fourth-biggest launch of all time, bringing in $2.2 billion at the box office. Disney is wasting no time capitalizing on Avatar's popularity by announcing a new Avatar experience coming to Disneyland.
Disney has been turning success at the box office into a lucrative stream of revenue for decades. It has literally thousands of characters across all its franchises that it can mine for years of entertainment. With the stock trading about 50% off its highs, now is a great time to buy the stock before the market changes its mind.
