By Timothy Lutts
Turning to specific stocks, I will admit that this is a challenging time for me. The reason: the best charts today belong to conservative stocks, and I know from experience that once this negative environment has passed, those stocks will lose their allure.
So instead of using charts, I’m turning to the Cabot Benjamin Graham Value Letter today to highlight a stock that’s attractive based on valuation.
It’s that well-known entertainment juggernaut Walt Disney Company (NYSE:DIS), which is currently selling for 30% off its recent high.
Here’s what Cabot Benjamin Graham Value Letter editor Roy Ward wrote in his latest issue.
The leading entertainment company operates a multitude of giant theme parks and resorts around the world, as well as many other operations including a cruise line, television networks and movie studios. Disney recently opened a new resort in Hawaii and is building a new resort in Shanghai, China. Expansion is also in the works at its ESPN network, Disney World in Orlando and Disneyland in California.
During the past 12 months, sales increased 5% and EPS rose 15%. We expect Disney to pick up the pace and produce sales and earnings increases of 9% and 23% respectively during the next 12 months. Expansion and recent rate hikes at the company’s parks and resorts will spur growth.
DIS shares are a bargain at 11.0 times our 12-month forward EPS estimate of $2.94. Larger box office sales and price increases could cause our estimates to be conservative. We believe the company’s share price will reach our Minimum Sell Price of 56.21 within the next one to two years.
For the record, Roy advises buying anywhere under 36.41, which is his Maximum Buy Price. If you buy above that level, you lose your Margin of Safety. But if you buy below that level, and DIS climbs up to 56.21 within two years, that’s a tidy 54% profit.