This is the fifth installment examining all thirty components of the Dow Jones Industrial Average to find undervalued equities in the blue chip space. Today’s installment covers Disney and General Electric.
Disney (DIS) – “The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide including a domestic broadcast television network, television production and distribution operations, domestic television stations, cable networks, domestic broadcast radio networks and stations, and publishing and digital operations. It operates the ABC Television Network and 10 owned television stations, the ESPN Radio and Radio Disney networks, and 46 owned radio stations”. (Business Description from Yahoo Finance)
1. Disney is selling at a five year projected PEG of under .9 which is a 40% discount to its five year average.
2. Disney has an A rated balance sheet and S&P predicts the company will grow earnings an average of 13% annually over the next three years.
3. DIS sells at a forward P/E of 10.7 on projected 2012’s EPS which is an over 25% discount to its five year average.
4. The contract ESPN just reached with the NFL removes uncertainty from the stock and should be margin neutral in worst case compared to previous contract and will probably be positive for margins over life of contract.
5. The median analyst price target on DIS is $43 and Credit Suisse’s price target is also $43.
· The possibility of a double dip recession on consumer spending
· Poor film results
Prognosis: Disney seems undervalued at $31 a share but might be under pressure for the near term with the continued heightened volatility in the market. I believe the best way to play Disney to sell out of the money puts on Disney to pick up premium and/or pick up Disney at a lower price. I am looking at the Jan 12 30 puts which are selling at $2.40.
General Electric (GE) – “General Electric Company operates as a technology, service, and finance company worldwide”. (Business Description from Yahoo Finance)
2. General Electric provides a dividend yield of 3.8% and has an AA+ rated balance sheet which should provide some stability and a floor under the stock during the current market turmoil.
3. GE is selling at just 9.5 times expected 2012’s EPS and has beaten analysts’ estimates each of the last six quarters.
4. General Electric has a projected five year PEG of just .78 which is an over 40% discount to its five year average.
5. It is selling at 40% less than some analysts’ estimates. S&P’s target price is $24 on S&P, Credit Suisse’s price target is $22 and the median analyst price target on General Electric is $21.75.
· Slowing worldwide economic growth will impact GE’s industrial businesses.
· The turmoil in European financial markets will affect GE Capital
Prognosis: I believe GE is very cheap here. The high dividend, low P/E, and decent technical support should provide some protection from the turmoil in the markets. It also looks like a great value for long term investors. BUY.
Disclosure: I am long GE.
Disclosure: I am long GE.