We recently compiled a list of the 12 Best Large Cap Stocks To Buy Now. In this article, we will look at where Walt Disney Co. (NYSE:DIS) ranks among the best large cap stocks to buy now.
Is the Next Bull Cycle Picking Up?
Analysts’ anticipation about the Fed initiating three rate cuts of 25 basis points each, starting in September, has become a hot topic in the current market. While some economic indicators show resilience, recent market fluctuations have raised concerns about deeper rate cuts being overestimated. Yet, a recession appears unlikely, and the steady economic growth suggests a cautious but positive outlook for the markets.
But the question is: why is a recession even being talked about? We discussed this earlier in another one of our articles, 12 Best Small Cap Tech Stocks to Buy, here’s an excerpt from it:
“Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.”
Binky Chadha, Deutsche Bank’s chief global strategist, joined CNBC last week to discuss what’s next for stocks, given the US elections — particularly the typical pullback seen in the month leading up to closely contested races, where markets often decline by 4% to 5%.
Chadha thinks that this trend, driven by uncertainty, prompts investors to seek protection against volatility, leading to a dip in stock prices. This decline usually hits its lowest point on election day, followed by a substantial rally if the election outcome is clear and resolves uncertainty. Historical instances, such as the Bush/Gore election, show that unresolved outcomes can exacerbate volatility, as seen with further market declines during that period.
Understanding market trends about elections is crucial, as delays can significantly impact investor confidence and overall market behavior. The current market is led by a significant rally in the S&P 500, reaching record highs despite challenges like high interest rates and geopolitical tensions. While election years typically see market weakness, the incumbency of both major party nominees may reduce uncertainty this cycle. However, potential volatility remains as the election approaches and corporate earnings are closely examined against high expectations, according to Chadha.
Chadha further talked about the Bush/Gore election and when a Supreme Court resolution seemed imminent, the market rallied. However, this was followed by a continued market decline. While relying on a single instance for broader conclusions is not ideal, this case reflects general market behavior. It’s important to recognize the prevailing positive trend, despite experiencing two pullbacks.
Chadha said that while the S&P 500 has shown unusual recovery dynamics, peaking with 26% year-on-year sales growth, this growth has slowed unsustainably over the past 2 years. As sales growth decelerates, concerns about potential downturns rise, leading to increased inquiries about negative sales growth in the S&P 500.
While Chadha acknowledges that S&P 500 sales growth has returned to pre-pandemic levels, implying stability, there’s also a decline in the labor market, particularly in private payrolls over the past 7 months. Such a mixed sentiment should be given into and used as a buying opportunity. With that, we’re bringing you a list of the 12 best large-cap stocks to buy now.
Methodology
For this article, we have defined large cap stocks as those trading between $20 billion and $200 billion. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Walt Disney Co. (NYSE:DIS)
Market Capitalization as of September 13: $164.30 billion
Number of Hedge Fund Holders: 92
Walt Disney Co. (NYSE:DIS) is a mass media and entertainment conglomerate known for its iconic characters, stories, and experiences. It produces movies, television shows, theme parks, and consumer products and also owns Disney+, a popular streaming service that offers a vast library of Disney content.
In July, NBA signed an 11-year media agreement with Walt Disney Co. (NYSE:DIS), granting the company exclusive rights to stream all NBA and WNBA live events and programming on its upcoming ESPN consumer platform, set to launch in 2025. The company’s commitment to producing high-quality content is evident from its 183 Emmy nominations for shows like Shotgun and The Bear.
Its cruise ships remain popular and provide family-themed voyages. In August, Disney Cruise Line announced an order for 5 new ships, which are expected to be delivered between 2027 and 2031, on top of 4 other vessels already scheduled to debut. Over the next 7 years, these 8 ships are projected to be over 2x the company’s existing fleet of 5 ships.
In the FQ3 2024, revenue was $24.5 billion, recording an improvement of 7% year-over-year. The company is poised for significant growth with its strategic $5 billion investment in film and television production across the UK and Europe over the next 5 years.
With recent successes at the box office and a profitable streaming segment, Disney is well-positioned to capitalize on its market leadership. 92 hedge funds stakes in the company, with the highest stake at $787.8 million by Fisher Asset Management.
Mar Vista Focus strategy stated the following regarding The Walt Disney Company (NYSE:DIS) in its Q2 2024 investor letter:
“The Walt Disney Company’s (NYSE:DIS) shares declined after its earnings release, even though the company exceeded recently upgraded financial forecasts. While Disney+ and Hulu reached a milestone by turning their first quarterly profit, the company cautioned about theme park attendance returning to pre-pandemic norms. This signals a deceleration following a period of exceptional growth, impacting the stock as theme parks and experiences account for roughly 60% of Disney’s earnings. Despite broader consumer worries, Disney’s stock is still trading with a significant discount to fair value. We expect the gap between Disney’s market price and its intrinsic value to shrink as its streaming division evolves and increases profitability over time.”
Overall DIS ranks 10th on our list of the best large cap stocks to buy. While we acknowledge the potential of DIS as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DIS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.