By Claudio Brocado, Professional Investor and YIS Contributor
Probably the most-widely held stock owned by young investors lucky enough to be in the market is the Walt Disney Company (DIS). The diversified media company possesses some of the most valuable brands, particularly when it comes to children entertainment. But DIS also owns ESPN, by far the largest and most successful sports network, and this operation is actually responsible for the best buying opportunity in the stock in a long time.
Due to the strength of its brands, DIS never a “cheap” stock. Like many other valuable global brands, the “House of Mouse” arguably deserves a valuation premium for its stock. However, that valuation premium has all but disappeared as Wall Street frets over the headwinds currently facing ESPN.
Like was the case with GameStop (GME), I believe young investors more attuned with today’s trends among their peers are probably best equipped to gauge how serious the long-term challenges faced by DIS really are. The market is currently concerned about the major trend called ‘cord cutting’. Millennials, let alone teenagers, increasingly do their “TV” viewing not on the good old television served by cable, but rather online.
The risk that such cord cutting represents to ESPN is probably currently overblown by market participants. That said, this risk is contributing to the increased talk and availability of so-called “skinny bundles,” whereby cable TV companies offer subscribers packages excluding services such as ESPN for much less money, encouraging a growing number of households to consider dropping the network from their packages altogether. This is a risk that investors should consider in evaluating DIS. Yet, in my humble opinion, that risk is almost surely overly discounted by the market today. DIS is a well-managed company that understands its customers and how they are changing. It is arguably the media company best prepared to make the transition to the digital era.
This is where the challenge comes to you, Young Investors. Do your homework, and decide how much of a buy DIS really is. The stock is rarely this cheap, relative to the broader market, and that in an environment in which the broader market itself has already been quite pounded by the current selloff. But young investors are, in my view, best equipped to understand their own peers and how strong the many brands that DIS controls really are for the long run.