Disney (NYSE: DIS) stock has surged more than 30 percent over the past year and has averaged annual growth of about 15 percent over the past 30 years. With its stock near an all-time high and the company sporting a market value above $110 billion, is it too late to join the party? Probably not.
Naysayers may point to the company’s box-office flop in “The Lone Ranger,” but that’s more than offset by the success of “Iron Man 3” and Pixar’s “Monsters University” – and Disney stands to make a lot more money from its newly acquired “Star Wars” and Marvel assets. Disney is a powerhouse on the small screen, too, with ESPN, and it’s getting into console gaming with its new Disney Infinity offering.
Meanwhile, parks and resorts are Disney’s second-biggest business and its fastest-growing segment. Attendance has been growing faster at international parks than domestic ones, and developing economies hold a lot of potential park visitors. Disney has regularly hiked its park prices, enjoying strong brand power.
Through its blockbuster pictures, expanding presence in the video game industry and dominance in parks and resorts, Disney is likely to keep prospering in the near, and far, future. It’s hard to argue that Disney stock is cheap with a P/E (price-to-earnings) ratio near 20, but sometimes you have to pay up for a great company.
Ask the Fool
Q: Some stocks I’ve held for a short period soared, nearly tripling, but then fell back, giving me just a doubling. Should I have sold when I had a significant gain and re-bought when the price dropped? Or just waited, hoping to gain in the long run? – E.C., Shenandoah, Iowa
A: Well, if you ever know for sure that a stock has peaked and will fall, then definitely sell. The only problem is that we never know exactly what a stock is going to do in the short run. And it’s hard to be exact about the long run, too.
Think about it this way: When you buy a stock, you should have an idea of the degree to which it’s undervalued. Ideally, you’ll have an estimate in mind of its intrinsic value. If the stock surges well beyond that, then sell, because it’s more likely to fall than rise from that point.
If a stock keeps rising within reason and the company remains healthy and growing, then over time its intrinsic value can rise, too. Consider just hanging on for the long term.
You can use measures such as P/E ratios as rough guides to value, buying low and selling high.
My smartest investment
Back in 1994, I was growing impatient, waiting for the go-ahead to invest from the financial experts I followed in the media. The experts claimed the market was excessively overvalued and had to break soon with a correction. The Dow was in the 3,700 range. Late that year I said “the heck with it” and transferred everything in my retirement account at work into stocks. As you know, I did quite well after that. Best of all, I could lose it all tomorrow and it wouldn’t change my lifestyle one iota. – Bill R., Long Branch, N.J.
The Fool responds: Be wary of experts’ predictions. The market has been whacked by several corrections since 1994, but it has kept recovering and growing. The Dow hit 11,000 in 1999, and then dropped near 7,000 in 2002. It then hit 14,000 in 2007 and then touched 6,500 in 2009. It has recently been above 15,000. Clearly, stocks can be volatile, which is why they should be off-limits for short-term money. But if you have many years in which your money can grow and can tolerate some risk, consider stocks.