We recently published a list of The 10 best blue chip stocks under $100In this article, we will look at how The Walt Disney Company (NYSE:DIS) compares to other blue-chip stocks under $100.
We are all wondering just one thing: Is the US economy heading for no landing, a soft landing or a hard landing?
The case for a renewed acceleration (or a no-landing) is supported by strong employment growth, expectations for double-digit corporate earnings growth and inflation remaining above 2.5%. On the other hand, the potential for a soft landing or (below-average growth) is supported by a slowdown in forward-looking labor market indicators. These indicators include hiring rates and subdued wage growth, which could weigh on real household incomes.
Finally, the case for a hard landing (recession, one might say) depends on historical precedent. A sustained period of aggressive tightening could push the economy into recession. But there is ample evidence that the U.S. economy is continuing to slow and inflationary pressures are easing.
Soft landing or recession – the debate continues
Currently, investors are still debating between a soft landing and a recession. Macro data is not much help in this regard, as a slowdown can be perceived in two ways: first, it can be seen as a healthy rebalancing that allows inflation to cool without negative growth, and second, as the path to a not-so-severe recession starting in the second half of 2024 or early 2025.
The broader financial markets are pointing to a soft landing scenario. This is evident when one considers the optimism around earnings growth expectations. Aside from this optimism, there is optimism around high-yield credit spreads, which are pricing in cyclically low default rates.
Conditions are improving in several developed economies, and there is some positive news coming out of China. The outlook for China appears to be brightening with the implementation of policies to stabilize the real estate market and stimulate the Chinese economy as a whole. The country faces significant longer-term structural problems related to high savings, subdued consumption, excess capacity and dependence on export demand.
The policy measures have improved the near-term outlook and led to a rise in China’s benchmark index from heavily oversold levels at the beginning of the year. The Hang Seng Index recorded a rise from ~16,224 levels in mid-April to ~19,636 levels in mid-May.
Expectations of a soft landing are likely to persist over the next few months as inflation concerns subside. Given the asymmetry in the mid-year yield outlook, experts should also be vigilant for signs of a deeper downturn.
What should investors do in the face of so much uncertainty?
Since inflation and labor market concerns have hit equity markets, investors have chosen to invest in recession-proof, high-quality blue-chip companies. They have every reason to do so, as these companies are able to weather economic volatility. Uncertainties about job growth, higher unemployment and speculation about possible interest rate cuts by the Federal Reserve are some of the factors weighing on investor confidence.
Nevertheless, recent numbers ranging from inflation to unemployment figures to rising retail sales have restored investor confidence in the US economy. Experts believe the US economy could be heading towards a “Goldilocks” scenario characterized by limited price pressures and healthy growth. Despite easing fears, investors continue to favor investing in blue-chip stocks.
While there are numerous investment strategies and trends, the strategy of investing in a blue-chip company with an excellent reputation is unbeatable.
What are blue chip stocks? An overview
If you are looking for smart investments for your portfolio, you might have come across the term “blue chip stocks”. These stocks are considered reliable investments and can offer numerous benefits. The blue chip stocks are those that have high value and long-term growth potential.
The term “blue chip” comes from poker, where the highest value chips are blue. Therefore, the term “blue chip” describes some of the highest quality stocks on the market. Blue chip stocks come from reputable and established companies with consistently strong performance.
Most of the time, such stocks have a long history of paying dividends and growing their market share. Even during times of market decline, blue-chip stocks remain resilient. Since they are issued by established and reputed companies, the prices of blue-chip stocks rise at a slower rate as compared to other stocks. Even during times of downturn, these stocks are less likely to experience rapid declines. These companies have healthy balance sheets and resilient business models, which is why they are considered “one of the safest investments.”
How can blue-chip stocks help with current economic concerns?
Blue-chip stocks are sometimes considered synonymous with reliability and stability. Such stocks represent companies that are leaders in their respective industries. Therefore, they have a history of stable finances and consistent performance. They provide investors with a sense of security when an economic downturn occurs.
For example, the iShares S&P 100 ETF, a leading blue-chip ETF, is up about 20% year-to-date despite uncertainty in global markets, including higher inflation, labor market uncertainty, geopolitical concerns, a slowdown in China, etc. In comparison, the broader market, the Dow Jones Industrial Average, is up just over about 7% year-to-date.
Aside from their size, blue-chip companies tend to stay at the forefront of innovation as they invest heavily in research and development. During stormy and difficult market conditions, dividends can be a source of steady income. These companies have a long history of generous dividend payments. They also have a policy of continuously increasing their payouts. Blue-chip stocks have also shown resilience in the past and have a strong track record of overcoming market downturns. For example, in 2020, when the global economy came to a standstill due to the deadly COVID-19 pandemic, the blue-chip ETF returned over ~19%. The broader market, on the other hand, only saw a ~5% increase.
Our methodology
To create our list of the best blue-chip stocks under $100, we first used the Finviz screener. We looked for profitable companies with moats that are likely to last for at least the next 25 years. We then ranked the best blue-chip stocks by their potential upside (as of August 16).
At Insider Monkey, we are obsessed with the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A packed cinema where moviegoers watch an entertainment company’s blockbuster.
The Walt Disney Company (NYSE:DIS)
Share price as of August 16, 2024: $89.30
Average upside potential: 25.98%
The Walt Disney Company (NYSE:DIS) is an entertainment and media company. The company operates through media networks, parks and resorts, studio entertainment, consumer products and interactive media businesses.
The Walt Disney Company (NYSE:DIS) has a clearly defined economic moat. The company owns brands such as Marvel, ESPN, Lucasfilm, and Pixar. Together, all of these brands form a composite group of market-dominating characters. Therefore, its ownership of timeless characters and franchises, along with its ability to create top-notch content, should continue to give the company an edge.
A decline may temporarily impact cinema or theme park revenues, but that should only be in the short term. In the long term, consumers will return to the brand’s cinemas, theme parks and merchandise given its market share and market-leading characters.
In Q3 2024, the company’s revenue was $23.2 billion, up 4% year over year, primarily due to 2% growth in the Experiences segment and 4% growth in Entertainment. Adjusted earnings per share increased ~35%.
The Walt Disney Company’s (NYSE:DIS) long-term prospects appear even more promising given the improved results in its streaming segment. Subscriber growth and higher monthly subscription costs for DTC services helped the company’s streaming segment post quarterly operating profit compared to the same period last year. The entertainment business reported operating income of $1.20 billion in Q3 2024.
Over the coming years, the company will make significant investments in the UK and continental Europe, with a focus on producing films and television shows for the big screen and the Disney+ streaming platform.
The Goldman Sachs Group initiated coverage of shares of The Walt Disney Company (NYSE:DIS) on March 25.th June. They issued a buy recommendation and a price target of $125.00.
Diamond Hill Capital, an investment firm, has released its first quarter 2024 investor letter on the Long-Short Fund. Here is what the fund said:
“Other top contributors in the first quarter were Meta Platforms, Citigroup and The Walt Disney Company (NYSE:DIS). Media and entertainment conglomerate Walt Disney faced – and defeated – an activist campaign and a proxy battle during the quarter, giving shares a boost. Profitability also improved – the company said it expects double-digit profitability from its streaming business – and announced upcoming capital returns to shareholders.”
DIS total 1st place on our list of the best blue-chip stocks under $100. While we recognize DIS’s potential as an investment, we believe some highly undervalued AI stocks promise higher returns and in a shorter time frame. If you’re looking for a highly undervalued AI stock that shows more promise than DIS but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
