Is The Walt Disney Company (DIS) The Perfect Stock?

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The run-up in the stock market has eliminated nearly all great bargains, but many stocks remain sanely-priced and could easily reach insane prices, should the bull market continue. The Walt Disney Company (NYSE:DIS) is one such company. Although it has run up to over $65 per share after starting the year at $50, the stock still trades at a decent price for investors looking to get fully invested in this bull market.

Wide moat

The Walt Disney CompanyThe Walt Disney Company (NYSE:DIS)’s share of children’s attention is unprecedented; nearly all American children grow up watching Disney productions and demanding their parents buy related merchandise. The company’s strong reputation and unbeatable brand give it a wide moat.

In addition, The Walt Disney Company (NYSE:DIS)’s portfolio of television networks and movie library create a large and stable stream of cash flows that can be used to build out the brand even further. For instance, the company recently acquired the Star Wars franchise and continues to pour money back into Pixar, which turns out hit after hit.

The Walt Disney Company (NYSE:DIS)’s deep library of hit movie franchises affords it a degree of protection against making a flop. For instance, losses from the colossal failure of John Carter to meet the company’s box office targets was offset by the numerous revenue streams still emanating from past hits like Pirates of the Caribbean and Toy Story. This enables the company’s creative team to take big risks that smaller rivals cannot afford in the quest to develop the next blockbuster.

Competitors cannot halt Disney‘s progress

The Walt Disney Company (NYSE:DIS)’s television networks all have wide moats. ESPN and the Disney Channel dominate their respective target markets. However, competition is still fierce.

For instance, Scripps Networks Interactive, Inc. (NYSE:SNI) occupies a variety of niches through channels like HGTV and Travel Channel. These niches draw a more targeted audience, which Scripps uses to charge advertisers higher rates than Disney can charge on its properties. Scripps Networks Interactive, Inc. (NYSE:SNI) takes advantage of this pricing power and earns higher margins on its cable properties than Disney does. Scripps, however, has had capital allocation problems, including a misguided attempt to expand internationally. As a result, investors should stay away until management can find better uses for its free cash flow.

Disney’s creative competition comes in the form of Dreamworks Animation Skg Inc (NASDAQ:DWA). Led by visionary producer Jeffrey Katzenberg, Dreamworks Animation Skg Inc (NASDAQ:DWA) is a factory for blockbuster animated films. The depth of its library of hits rivals that of Disney, which is why the latter company has tried for years to acquire Dreamworks.

Fortunately, however worthy a competitor Dreamworks may be, both companies may prosper at the same time. Most viewers do not first decide to see a movie and then choose which movie to see; most viewers see a trailer for a movie that makes them want to go that specific movie. As a result, viewers are likely to buy a ticket for both a Disney movie and Dreamworks movie if both turn out well. Therefore, Dreamworks and Disney compete for awards, but not for viewers.

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