Will This Investment Make You Happy?

Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The current stock market environment rewards the biggest risk takers. And while this trend may last for many years, it will eventually come to a halt. When it does, you will want to own best in breed companies, those with strong fundamentals. If you’re patient, and you’re willing to give up high-risk/high-reward trades for the short term, then Disney (NYSE: DIS) might be for you.

The right moves

The subtitle above was almost "All the right movies," but after The Lone Ranger (27% approval rating on Rotten Tomatoes/6.7 on IMDb), that wasn’t a possibility. At least Monsters University and Oz: The Great and Powerful were hits. Since we’re on the movie theme, let’s see what else Disney has in store for the remainder of 2013:

  • Tink
  • Magic Kingdom
  • Phineas and Ferb Movie
  • McFarland
  • The Hill
  • Frozen
  • Super Buddies
  • Planes
  • Saving Mr. Banks
  • Teen Beach Movie

While it’s unlikely that all these movies will be hits, it’s safe to assume, that at least one of them will be a big score. Planes might stand out as having the most potential. Even if the movie is just halfway decent, kids will still enjoy watching planes flying around. That sounds overly simplistic, but it's true.

Extraordinary diversification

Disney is well known for its theme parks, but many people aren’t aware that Disney owns ESPN, ABC, Pixar, Marvel Entertainment, Touchstone Pictures, and Lucasfilm. If you study this list, you will see that Disney is targeting all different types of viewers and consumers. Disney is also set up for brand exposure through its content delivery deals with Comcast, Netflix (NASDAQ: NFLX), Cox Communications, and Charter Communications.

Guaranteed income

Hasbro and Disney have extended their Marvel agreement for two more years, which means Hasbro will pay Disney $80 million for the rights to design and sell Marvel character toys. Hasbro will also pay Disney $225 million for the rights to design and sell Star Wars character toys based on the upcoming trilogy. 

Disney vs. peers

Disney has seen revenue and earnings improvements for three consecutive years. Disney's brand is phenomenal on an international basis and Disney is constantly looking for growth opportunities. Management is top-notch, especially considering the company is capable of growing the top and bottom line while maintaining a debt-to-equity ratio of just 0.39. 

Time Warner (NYSE: TWX) reaches approximately 100 million American households, which is amazing, considering there are just over 300 million people in the United States. Despite this enormous reach, Time Warner faces some serious threats in video streaming, which is evidenced by the company’s revenue decline in 2012.

Time Warner attempted to get in on Hulu, but Hulu backed out. This would have been a good move for Time Warner, as Hulu has 4 million subscribers, and it generated $700 million in revenue last year. But perhaps it was a blessing since Time Warner is loaded with debt. Plus, Hulu is still well behind Netflix.

Netflix has seen consistent revenue improvements and the company is growing domestically and internationally. With a fee of just $8 per month, demand remains high. Past failures have taught Netlfix that it shouldn't try to increase this fee. But with 38 million members, it might not need to.

While subscriber growth is faster than one year ago, it didn’t meet expectations in the second quarter. Plus, guidance was weak. This, in addition to the removal of some popular content and a trailing P/E of about 600, make Netlfix a high risk holding. While Netflix is likely to be a long-term winner, now might not be the ideal entry point.

Conclusion

With Time Warner fighting against industry trends and Netlfix looking as though it might be a little overvalued, Disney looks like the best long-term option. Disney is an extremely well-run company with enormous international brand recognition, quality debt management, numerous revenue streams, and a keen eye for future growth opportunities. Perhaps it's time you took a closer look at this incredible content providing machine.

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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