My conviction call on Walt Disney was a 45% winner
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My conviction call on Walt Disney was a 45% winner

My conviction call on Walt Disney was a 45% winner

From Mickey Mouse to Sleeping Beauty, Captain America to Princess Jasmine, Disney is a chronicle of the evolution of global mass culture, the library of our lives, the way we were

  • Disney shares peaked at 153 in November after it launched Disney Plus in the US
  • Walt Disney is undervalued at 21 times earnings despite its stellar performance
  • The SP500 index is grossly overbought with a 76% Relative Strength Index

My conviction call on Walt Disney shares, published in successive columns in the financial press in the autumn of 2018 at 100, was up a phenomenal 45% in 2019 and in the first ten days of January 2020. My faith in the Magic Kingdom/House of Mouse was based on my conviction that multiple factors would provide the white hot ballast to propel Disney shares much higher in 2019.

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One, CEO Bob Iger had bet the world’s preeminent media empire on a streaming future, with the launch of Disney Plus. Two, Disney would derive strategic synergies from its $85 billion acquisition of movie, TV and cable studios, content libraries and distribution platforms from Citizen Murdoch’s 21st Century Fox, a takeover deal I had flagged in my UAE newspaper columns in 2019, with a 50% profit when Disney finally bid in the biggest ever merger deal in global media. Three, the opening of a Star Wars theme park demonstrated to moi, still gaga after boyhood trips to Anaheim and Orlando, still nostalgic for the Lion King, Aladdin and Obi-wan Kenobi, the sheer multi-generational power of Disney’s iconic media brands – Pixar, Marvel, Star Wars, ESPN, Lucasfilms - the most profitable movie studios in Hollywood - and theme parks in Shanghai, France and Hong Kong (oops!) and cruise boats.

From Mickey Mouse to Sleeping Beauty, Captain America to Princess Jasmine, Disney is a chronicle of the evolution of global mass culture, the library of our lives, the way we were. Four, I must confess a strong bias for Disney. My former Penn classmate Willow Bay, the most beautiful and talented woman of our Duran Duran (what?) generation, is married to Bob Iger, chairman and CEO of Disney – and the anointed king de jour of Hollywood, the world’s most creative media executive. It is no coincidence that Disney shares jumped 12% when Bob Iger outlined his streaming vision for Disney Plus, ESPN and Hulu on its Investor Day in its Los Angeles (OK, Burbank) head office. This was on April 13, Disney’s Investor Day and was a windfall for all my friends who I had personally briefed on the bullish case for Disney. So thank you, Mr and Mrs (cher Willow!) Iger. You financed my lavish trip to Dubrovnik, Croatia last April and alot more!

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Disney shares peaked at 153 in November after it launched Disney Plus in the US and Canada revealed 10 million subscribers for the service in day one – voila, the shares jumped another 7% on the NYSE in one memorable session. The Magic Kingdom did some serious black magic on my media portfolio. A caveat. I will do anything for my cherished readers and friends, but I refuse to go watch the latest Frozen 2, Avengers or Star Wars: Rise of Skywalker, let alone Captain America for due diligence. It is sufficient to know that nine Disney films have generated $1 billion in the box office. US theme park attendance was a blowout despite higher ticket prices. True, ESPN is vulnerable to cord cutting and the Fox assets slammed the bottom line, as Bob Iger had guided Wall Street when the takeover deal was concluded. Disney is 144.50 as I write – and the little bunny in my brain and nervous system flashes a bullish neural signal to me. Pour quoi?

First, I totally believe that Walt Disney is undervalued at 21 times earnings despite its stellar performance since I first flagged its shares in the GCC/British press. Valuation is a lousy timing indicator and I would ideally buy the shares near its 200 day moving average (for new money) at 132. The SP500 index is grossly overbought with a 76% Relative Strength Index, 82% of Index companies above their 200 moving averages and the Volatility Index (VIX) a mere 13 ahead of the treacherous US Presidential primary season. Yet the existential fact remains that the Magic Kingdom will deliver 17% revenue growth in 2020 and is thus undervalued on the NYSE.

Warren Buffet accumulated Apple when it traded at 10 times earnings and it now trades at 26 times trailing earnings, after a fairy tale 100% plus year. Will Disney see a similar iconic (hate this word so beloved by local pushy real estate con men) valuation re-rating on Wall Street? Absolutely, yes!

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Second, the easy money on Disney was made six months after my conviction call as the stock market is the art of discounting the future, thinking hypothetically and conditionally - but selling the actual news. Yet Disney Plus is a game changer in global media that could easily command 30 million subs in 2020 and the mass culture/China zeitgeist ensures the box office will continue to generate billion dollar blockbuster hits. As P.T Baumun observed, nobody ever went bankrupt underestimating the collective intelligence of the human race and, yes, there is a sucker born somewhere every nanosecond.

Third, Disney never responded to my teenage request in a letter I wrote from Dubai asking for a summer job working as Goofy or Mickey Mouse in their California since I idolized them. Yet money making in its shares in 2019 was thus a belated consolation prize. I am waiting to re-enter Walt Disney via options spreads on the CBOE at 130 for a target price of 160.

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Walt Disney (the man!) was one of history’s greatest human beings, since he brought such happiness to untold millions of young souls all over the world, including a boy with a Beatles haircut growing up in Jumeirah. As Aladdin (my grandfather’s real name – he sadly died in 1942) sang on his magic carpet “a whole new world…a new fantastic point of view.” That is the thrill of what life is all about.

Author
Matein Khalid

Matein Khalid is responsible for global investment strategies, merchant banking, and the development of the multi-family office investment platform. He advises ultra-high net worth royal and family offices in the UAE on global equities markets and foreign exchange.

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