Guess What? I'm Going to Disney!
Here's why I'm making a bet that a turnaround at the House of Mouse is finally starting to take hold — and how I'm doing it.
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As I noted in my column Friday on TheStreet Pro, a company director purchased just over $2 million shares in The Walt Disney Company DIS in May. This was the first significant insider buying in this beleaguered stock in many years. That put Disney on my radar.
Then, on Wednesday, Doug Kass in his Daily Diary on TheStreet Pro mentioned he had opened a long position in the stock. That really got my attention as Doug has had frequent and successful short positions against Disney stock over the years.
These events combined could point to a viable level to establish an initial position in this well-known and underperforming name.
In addition, Disney appears to be making progress in putting some difficult years behind it. Before Bud Light self-immolated last year, Disney was on the vanguard of what I'll call the "Go Woke, Go Broke" corporate movement. The company named a new CEO to take over for the long-tenured Bob Iger in early 2020. The new leader was clearly not up for job, in retrospect.
The company came out against the Parental Rights in Education Act, new legislation that had passed in Florida. In retaliation, the state government targeted the company's privileges around Disney World they had enjoyed since the 1960s that no other corporation in the state had been granted.
Disney ultimately replaced CEO Bob Chapek and bought back Bob Iger. It has taken a while, but the company now seems to be making some progress. For starters, it has patched up its differences with the state of Florida.
The turnaround cannot come soon enough for long-time Disney shareholders as the stock has lost nearly half its value from the beginning of 2021. On that front, recent news seems to be encouraging after Disney won a proxy fight with billionaire activist Nelson Peltz in April.
Disney should benefit from price hikes on Disney+/Hulu/ESPN+ in 2024. More importantly, the company’s content also appears to be on the mend. Inside Out 2 has surpassed $1 billion at the global box office in its first three weeks and may turn out to be Pixar’s largest grossing movie in its history. In addition, Deadpool & Wolverine comes out in three weeks and should be a monster hit at the box office, which should produce more good vibes for the company. The latest film in the Lion King series should also do well.
Meanwhile, the company’s theme parks are thriving at the moment and its cruise business is solid as well. Streaming is still a work in progress, but overall, Disney seems finally to be on the right tract and advertiser demand is good.
What's more, the company seems to be gaining favor with the analyst community. So far in early July, four analyst firms, including Needham and Guggenheim, have reissued "Buy" ratings on the stock. Price targets range from $125 to $145 a share. Disney currently trades just under $100 a share.
Taken all together, Disney seems to merit a small position pending further signs of a turnaround.
Option Strategy
Here is how one can establish a position in DIS using a covered call strategy. Remember, covered call orders involve buying an equity and simultaneously selling just-out-of-the-money call strikes against the new position.
Selecting the March $95 call strikes, fashion a covered call order with a net debit in the $86.00 to $86.20 a share range (net stock price - option premium). This strategy delivers downside protection of 12% across the trade expiration. This strategy also provides upside potential of around 10% over the option duration even if the stock trades down slightly.
At the time of publication, Jensen was long DIS.
