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Disney’s properties continue to flex their monetary muscle

Fans wear 3-D glasses during a preview showing of Disney’s "Alice in Wonderland" at the Comic-Con International 2009 convention in San Diego in July. The upcoming movie is among the reasons for the company’s continued healthiness.     (Associated Press / The Spokesman-Review)
Fans wear 3-D glasses during a preview showing of Disney’s "Alice in Wonderland" at the Comic-Con International 2009 convention in San Diego in July. The upcoming movie is among the reasons for the company’s continued healthiness. (Associated Press / The Spokesman-Review)
United Press Syndicate

Not even Mickey Mouse is immune to this recession. But he’ll make it through all right.

Walt Disney (NYSE: DIS) is a strong international performer in most economic climates. The star performer in its third quarter was the media networks division. ESPN, ABC and the Disney Channel collectively held their ground year over year, losing just 2 percent of their sales. With the broadcasting industry fighting online piracy, reticent advertisers and worries that TiVo boxes and other DVRs will kill traditional TV advertising, that performance is an impressive show of Mouse muscle.

All told, revenue fell 7 percent from 2008 levels to $8.6 billion, and net income was down 23 percent. Still, that’s $954 million of earnings and $881 million in free cash flow, straight into the bank. Disney remains a true cash machine, even at the worst of times. Disney’s solid brands and near-constant stream of fresh, high-quality entertainment content drives this strength.

The upcoming slate of Disney movies inspires confidence. “The Princess and the Frog” looks like a return to Disney’s Brothers Grimm-style storytelling roots. The star-studded live-action remake of “Alice in Wonderland” at the hands of real-life Mad Hatter Tim Burton ought to draw a crowd. And then there’s the third installment of “Toy Story” next year. ’Nuff said.

Disney appears to be doing all the right things to stay healthy.

Ask the Fool

Q: I was sitting on $12,000 in profits, but they’re now down to $5,000. Should I sell and keep the cash in case the Dow crashes again? – K.F., Newark, N.J.

A: If you do and the Dow does crash soon, you’ll be well positioned to profit. But what if it just keeps rising? You’ll miss out on a lot of gains.

The truth is that no one knows what the market will do in the short run. In the long run, it tends to go up.

You should keep any money you’ll need within the next few years out of stocks, since a crash can happen at any time. But otherwise, it’s often best to remain in the market and to try to add to your holdings when it sinks. If you’re not comfortable in stocks, though, sell some or all of them.

Q: Warren Buffett’s mentor, Benjamin Graham, is famous for having said, “In the short run the market is a voting machine. In the long run it’s a weighing machine.” But what does that really mean? – K.L., Escondido, Calif.

A: Graham was pointing out how from day to day, the stock market tends to reflect the popularity of various stocks. Investors “vote” by buying and selling, sending prices up and down. There’s a lot of psychology at play. Over the long run, though, the popularity contest fades away and value is what matters. Stock prices ultimately reflect the value of the underlying companies, based on their sales and earnings, and their potential growth. So don’t get caught up in a short-term mentality, guessing which stock will be popular next month. Instead, look for long-term value.

My dumbest investment

My dumbest investment was to succumb to management pressures to not exercise my stock options and sell stock when my employer’s stock was at a peak. Although I came out all right in the end, my net worth would have been higher had I exercised them and diversified at an earlier age. Moral: Don’t let your company’s stock be a dominant part of your portfolio. – K., online

The Fool responds: This is a big danger. For many workers who receive stock options or stock grants, company stock ends up being by far the biggest chunk of their portfolio. That’s risky, as former Enron employees can tell you. Even blue-chip employers can let you down – look at General Electric stock, down more than 50 percent over the past decade, and General Motors, which filed for bankruptcy protection. It’s smart to invest in healthy and promising companies that you know well, such as your employer, but don’t overdo it. Spread your fiscal eggs over a bunch of baskets. Don’t invest too conservatively, either. If you’re far from retirement, favor stocks over bonds.

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