Blue-chip stocks are probably the safest stocks to buy when the market is in correction mode.
Since the U.S. stock market has already fallen about 10% since the beginning of 2016, many blue-chip stocks have sold off as well. Amid the market turmoil, investors can count on blue-chip stocks to be a winner in the long run and can buy these stocks at a beaten-down valuation.
One such stock is Disney (DIS, Financial). Disney is already down over 20% from its 52-week highs and is trading at a conservative valuation. The stock will outperform the market in the long run, and investors should buy it after the recent selloff.
Media networks
Media networks account for the biggest and most lucrative part of Disney, and the market will once again be attentive to Disney’s media networks, and mainly to its most significant part, ESPN. Despite the fact that the sports cable network remains extremely fruitful, its subscriber count is weakening due to clients dumping or shifting from their massive cable packages. Together with this, the prices of securing broadcast rights to live sporting events have been continuously rising. Consequently, while its margins are still good, the company is under little pressure.
The day before Thanksgiving, the company released its ESPN subscriber clients list in an SEC filing, reporting that they dropped from 99 million in FY2013 to 92 million at the end of the previous year. In terms of annual loss, the company underwent a subscriber loss of around 3.6%.
These problems and their influences on profitability are sincere. Ultimately, media networks accounted for a large portion of Disney’s overall revenue, around 44%, and an enormous 53% of its operating income last year. On the other hand, it is likely the market is undervaluing Disney's capability to overcome this barrier or pay off for it.
Disney is a master company at leveraging its intellectual possessions, which in many instances result in surprising new revenue sources. Moreover, the company has substantial known catalysts for evolution on the horizon, some of which could turn out to be more influential than expected.
Project in Shanghai
Media networks account for Disney’s largest revenue-generating segment followed by its Theme Parks segment in second position. Disney’s Theme Parks segment represents almost one-third of overall revenue. Nearly all of the company’s parks globally reported escalated visitors and top line throughout FY15, and the segment generally stated a 14% upsurge in income at that time. The company’s strategy to upgrade the parks in the next two years, comprising thrilling new features and rides, will help the company grow further.
The most thrilling improvement to this segment is going to be the inaugural of Shanghai Disneyland in June this year. This project , which will cost around $5.5 billion covering an area of 1,000 acres, is predicted to be the company’s most crowded Disney park in the world when it opens with 25 million projected guests yearly, compared with around 20 million projected at Orlando’s Magic Kingdom.
Irrespective of China's existing economic dilemmas, the country still has a huge and mounting middle class with families that make a very striking market for Disney.
Conclusion
All the headwinds are currently priced in Disney’s stock, and it can be a great stock to hold amid market turmoil. The company’s Media section may be struggling, but it plans to make up for opening more theme parks. At 18x trailing earnings, Disney looks cheap now and is a great buy after the pullback.
