The market rally that has driven all of the major indices has been a massive boon for investors, and the question that is beginning to surface is where and when the parabolic move higher comes to an end. While the market had a solid move in the first three quarters of 2023, the sharp move to all-time highs began in October when Federal Reserve Chairman Jay Powell suggested that interest rate hikes were over for this cycle.
While the Magnificent 7 stocks and the Artificial intelligence mania have led the charge higher, other companies are starting to participate. While many across Wall Street feel the market is overbought, the widening breadth is a positive.
We decided to screen two companies, neither of which are members of the Magnificent 7, but one was once a FAANG member who fought in the same entertainment arena to get a feel for the best investment idea now. While both companies have Buy ratings on Wall Street, one still holds the advantage.
The Walt Disney Company
The entertainment giant needs better management and even more than ever, better content. The Walt Disney Company (NYSE: DIS) is a worldwide entertainment company.
It operates through three segments:
- Entertainment
- Sports
- Experiences
The company produces and distributes film and television video streaming content under these well-known outlets:
- ABC Television Network,
- Disney,
- Freeform
- FX
- Fox
- National Geographic
- Star brand television channels
- ABC television stations and A+E television networks
Disney also produces original content under the:
- ABC Signature
- Disney Branded Television
- FX Productions
- Lucasfilm
- Marvel
- National Geographic Studios
- Pixar
- Searchlight Pictures
- Twentieth Century Studios
- 20th Television
- Walt Disney Pictures
It also offers direct-to-consumer streaming services through Disney+, Disney+ Hotstar, Hulu, and Star+
Sports-related entertainment services through ESPN, ESPN on ABC, ESPN+ DTC, and Star s
Film and episodic content are sold/licensed to third-party television and VOD services; theatrical, home entertainment, and music distribution services are provided; DVD and Blu-ray discs, electronic home video licenses, and VOD rental services are provided; staging and licensing of live entertainment events are provided; and post-production services are provided.
In addition, the company operates theme parks and resorts comprising:
- Walt Disney World Resort
- Disneyland Resort
- Disneyland Paris
- Hong Kong Disneyland Resort
- Shanghai Disney Resort
- Disney Cruise Line
- Disney Vacation Club
- National Geographic Expeditions
- Adventures by Disney
- Aulani, a Disney resort and spa in Hawaii
It also licenses its intellectual property to a third party for operations of the Tokyo Disney Resort; licenses trade names, characters, visual, literary, and other IP for use on merchandise, published materials, and games; operates a direct-to-home satellite distribution platform; sells branded merchandise through retail, online, and wholesale businesses; and develops and publishes books, comic books, and magazines.
Netflix
The streaming and production giant continues to dominate the brave new world of media. Netflix Inc. (NASDAQ: NFLX) provides entertainment services.
It offers TV series, documentaries, feature films, and games across various genres and languages.
The company also allows members to receive streaming content through various internet-connected devices, including TVs, digital video players, set-top boxes, and mobile devices. It has operations in approximately 190 countries.
What started as a company that mailed DVDs to clients to enjoy movies has become a streaming giant with production capabilities that have stunned audiences worldwide. By 1999, the company had 239,000 subscribers, which jumped to over one million by 2001 and over 6 million by 2006.
According to reports, the company has grown phenomenally from 2010 to now, accounting for 15% of the world’s internet bandwidth. By 2021, it earned the most Academy Awards of any studio and won the most Emmy awards, tying CBS’s record of 44.
While institutional investors own almost 85% of the shares, savvy investors with deep pockets can buy shares. However, they should be cautious as the company trades just below 52-week highs but about 12% below all-time highs printed at the height of the pandemic.
Here is our 24/7 Wall St. side-by-side comparison
Both companies are expensive
Disney is trading at a stunning 69 times earnings, while NetFlix is somewhat lower at just over 50 times.
Dividends are not a factor.
While Disney pays a slight 0.80% dividend to shareholders, Netflix offers investors no dividend, at least for the time being.
Disney still needs to improve.
Seven top factors are haunting Disney as Bob Iger returned to try and fix the House of Mouse; here are some issues he and the company are facing:
- Theme park attendance has dropped
- Disney movies have failed spectacularly over the last few years
- Disney+ has been a loser
- Hulu subscriber’s growth has stalled
- ABC is making money, but viewership is plunging
- TV customers are cutting the cord and threatening the retransmission fees ABC receives from cable and satellite companies that carry its stations.
Netflix is also facing headwinds
Not impervious to the changing entertainment world, Netflix needs to worry about the following:
- Growing competition from over-the-top streaming companies
- Big-tech companies want a piece of the pie, and some companies like Apple Inc. (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL) have a gigantic cloud presence
- Price increases have caused some subscribers to leave
- The pandemic tailwind is over
And the winner is….
While competition for entertainment and sports programming is growing, big technology looks like it wants to try to barge in and likely will. For now, NetFlix looks like the better buy, but only by a very slight margin. The more attractive stock price is the biggest positive for Disney shareholders and those eyeing the shares now.
In addition, Netflix had a massive run off the lows printed just over a year ago and likely will consolidate soon, and that would be a possible entry point. However, Disney’s issues are across the entire corporation. While Bob Iger wants to leave the company in a couple of years with his reputation intact, it may not be enough to fix the current problems.
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