Apple (AAPL -0.35%), Walt Disney (DIS -0.04%), and Take-Two Interactive (TTWO 0.72%) have not been immune from the challenges that have hit the economy over the last year. Sales of iPhones stalled last quarter, Disney is being hurt by higher production costs, and Take-Two's latest video game releases generated less revenue than expected.
But these industry leaders have delivered market-beating returns before and will do so again. Here's why investors can confidently buy these stocks today.
Apple
Brand Finance's prestigious Global 500 list ranks Apple as the second-most-valuable brand in the world. The tech giant is relentless in improving the usefulness of its iPhones, Macs, and other devices, which has led to consistently high customer satisfaction scores. That's a big reason why Apple was able to double its installed base of active devices to more than 2 billion over the past seven years.
Apple is not without risks. Inflation and supply chain issues have pressured the company's sales. Specifically, iPhone sales, which provide most of Apple's revenue, dipped by 8% year over year in the quarter that ended Dec. 31. These headwinds have sent the stock down in the past 15 months, and while it has recovered somewhat from its recent lows, it's still off by 9% from where it traded at the end of 2021.
Still, Apple's growth in free cash flow in recent years points to a prosperous future. Over the last year, it generated a staggering $97 billion in free cash flow on $387 billion in total sales. That's more free cash flow than Microsoft, Amazon, and Meta Platforms combined. That gives it a huge war chest it can use to market itself and invest in new growth initiatives.
Data by YCharts.
While investors are increasingly focused on Apple's services business as a long-term growth catalyst, the iPhone still has a lot of potential to win new customers. In emerging markets, Apple's installed base grew at double-digit percentage rates in the most recent quarter. Most importantly, Apple reported record levels of customers switching from competing smartphone brands to iPhones in India and Mexico.
Apple's brand and consistent streams of free cash flow are good reasons to hold its stock for the long term, but there's one last reason to consider buying the stock right now. It is widely expected that the company will announce its long-rumored mixed-reality headset this year. With that potential catalyst dangling in front of investors, Apple is a no-brainer.
Walt Disney
Disney has been entertaining children and families for a century. It's hard to imagine the world without Disney, which might be enough reason to justify buying shares, but there are specific reasons why now is a perfect time to open a position in the stock.
The stock has fallen by 53% from its previous highs, yet the company has valuable assets that could unlock substantial value for shareholders.
CEO Bob Iger, who led the company to market-beating returns during his first stint in the top job between 2005 and 2020, returned to the helm in November. He's looking to bring down costs in the streaming business and improve profitability, and some analysts believe these cost-reduction plans could lead Disney to sell its majority stake in Hulu next year. Citi (NYSE: C) analyst Jason Bazinet sees marginal upside of about $13 per share, or about 13% of Disney's recent share price, from a possible sale.
Whether Disney sells its Hulu stake or not, there is tremendous value in its various media assets, including ABC, ESPN, and its growing theme park business, that may not be fully reflected in the current stock price of $98.
Indeed, Disney stock is selling at just 2.1 times trailing-12-month revenue, which is its lowest price-to-sales valuation in over 10 years. Yet it has experienced tremendous growth in subscribers to Disney+ over the last few years, and its theme park business is generating more revenue and profits than it did before the pandemic.
Disney is a timeless brand that appears undervalued right now, making it a no-brainer buy.
Take-Two Interactive
Take-Two has had an impressive run in recent years in the $200 billion video game industry. The company's flagship title, Grand Theft Auto V, has sold an impressive 175 million copies since its 2013 debut, and it's still going strong.
Across all its games, Take-Two's revenue has more than doubled over the last five years, and management is keeping its foot on the gas. Not many companies are expanding their capital investments in this uncertain economic environment, but management sees a great opportunity to capitalize on its improved profitability from the success of Grand Theft Auto V to expand its game lineup.
Data by YCharts.
Since Red Dead Redemption 2 launched in 2018, it has sold over 50 million units, but there are eight more new titles from previously established game franchises set to be released through its fiscal 2025. One of those is likely the next installment in the Grand Theft Auto series, which will be selling to a larger fan base.
The company also has 38 titles set for release on mobile devices. On that note, Take-Two's $12.7 billion acquisition of Zynga, the maker of Words With Friends, positions the company well to capture a piece of the burgeoning in-game mobile advertising market, which Allied Market Research estimates will grow to a value of nearly $18 billion by 2030.
Sales of Take-Two's established franchises have remained resilient over the last year, but its top-line growth has been weaker than investors expected. This is primarily due to weakness in recent releases, but it's also why the stock is selling at an attractive discount. The stock is down by 46% from its high, which presents investors with an attractive entry point considering the abundant opportunities the company will have in gaming over the long term.
