The best way for investors to win in the stock market is by choosing quality companies and holding onto their shares for the long term. In some cases, you won't ever want to let go of a stock.
So what kind of company has a chance to be such a great pick that you'll want to hang onto its shares forever? One with a long track record of earnings growth, prospects that look bright farther than the eye can see -- and one with brand strength.
A perfect example of a forever stock is Disney (DIS 0.31%). The entertainment giant's theme parks are the most popular in the world, and it has made great progress in developing top-notch streaming services. The company has stumbled somewhat in recent times as its costs mounted -- but one of its most successful leaders has come back to spur its growth. Here's why this is a stock you'll want to buy on the dip and keep.
Growing Disney+
First, a bit of background on Disney's troubles. The company's priority over the past couple of years has been growing its streaming services, Disney+ in particular. It has been successful when it comes to attracting new subscribers. In its fiscal 2022, its streaming services gained almost 57 million net subscriptions.
The problem was that all this growth came at a steep cost. Operating losses at the direct-to-consumer business unit that includes streaming widened to $4 billion in fiscal 2022 from $1.6 billion a year earlier. At the same time, some investors grew pessimistic about Disney. As a result, the stock is down 21% over the past year.
But here's the good news. Bob Iger, who served as chief executive officer from 2005 to 2020, is back in the top job. And his goal is to bring growth back to Disney. During his prior tenure, Iger led Disney through the acquisitions of major properties including Pixar and Marvel. And Disney's market value climbed as it turned those new assets into cash cows.
DIS Market Cap data by YCharts.
Today, Iger is reorganizing departments, cutting jobs, and attempting to make the park experience better for visitors. He also plans to have the company invest more in its core brands and carefully consider which movies should be brought to the screen. The CEO has targeted $5.5 billion in cost savings through these and other efforts.
Disney also says it is sticking to its original goal of bringing Disney+ to profitability in fiscal 2024.
We should expect results on all of these fronts in a pretty short time period. That's because Iger has only two years to get the job done before he's due to hand the reins over to a new CEO.
So, the coming year or so may be filled with catalysts that could lead Disney shares higher. That's great in the short term. But all of Disney's expected accomplishments also should confirm its status as a top forever stock.
A theme park leader
As mentioned earlier, Disney is the leading name when it comes to theme parks. That has remained true even in these difficult economic times. In its fiscal 2023 first quarter, which ended Dec. 31, the parks, experiences, and products segment delivered double-digit percentage growth in revenue and operating income. Spending per guest in its domestic parks also was on the rise. And advance reservations showed increasing attendance at domestic parks compared to last year.
The parks, experiences, and products business generally has been the biggest revenue driver at Disney, so strength here is an important element.
This, coupled with a better overall cost structure and eventual streaming services growth could bring the magic back to Disney.
Today, Disney shares are trading for 24 times forward earnings estimates. That's down from a ratio of more than 32 about a year ago. Considering Disney's potential new paths to growth and the ongoing strength at its parks, this looks like a great stock to buy on the dip.
