Motley Fool: The mighty mouse

Bob Iger is back: The executive who helped build Walt Disney (NYSE: DIS) into the entertainment titan it is today recently returned to his post as CEO. Iger oversaw Disney’s acquisitions of Pixar, Marvel and Lucasfilm – all of which have gone on to be profit powerhouses for the company. Now, Iger aims to build the Disney+ streaming service into another potent profit driver.

With more than 164 million subscribers as of Oct. 1, Disney+ is already a formidable force in streaming. Combining that with over 24 million customers for ESPN+ and 47 million for Hulu, Disney’s total streaming subscriber count exceeds 235 million.

However, Disney’s streaming business is not yet profitable. The direct-to-consumer division that includes Disney+ generated an operating loss of nearly $1.5 billion in its most recent quarter, as the company spent heavily to strengthen its already impressive content library. Management expects Disney+ to achieve profitability in fiscal 2024, thanks in part to recent price hikes and a new ad-supported plan.

Once its streaming operations begin contributing to its profit production, investors should get a better sense of Disney’s true earnings power, which should boost its stock price. You can buy ahead of these likely gains because Disney’s shares dropped 44% in 2022. (The Motley Fool owns shares of and has recommended Walt Disney stock and options.)

Ask the Fool

Q. I have some extra money. Should I pay off my car loan or invest in the stock market? – L.R., Portland

A. It depends. First pay off any high-interest-rate debt, such as that from credit cards, and make sure you have an emergency fund ready with three to six months’ worth of living expenses.

Next, compare interest and growth rates. Know that the stock market’s long-term average annual growth rate is around 10%, though it can be higher or lower over your particular investing period. If your car loan’s interest rate is, say, 9%, paying that off is very reasonable. If the interest rate is 4%, you might want to invest that money in stocks.

Depending on your risk tolerance, it can be worth paying a little in interest while aiming to earn more through stock appreciation. Just make sure you’re investing for the long haul.

Q. What are activist investors? – C.H., Grand Rapids, Michigan

A. They’re often heads of hedge funds or private equity companies who buy many shares of a company’s stock in order to influence or pressure management. They sometimes even get onto its board of directors.

Activist investors will often target big companies they see as inefficient, publicly pushing for changes such as cutting costs, spending more on dividends or share buybacks, replacing managers, taking the company private or breaking up the company.

Carl Icahn and Bill Ackman are two well-known activist investors. Icahn has bought big stakes in companies such as Apple, eBay, Dell, Netflix, Motorola and Yahoo in the past; Ackman’s targets have included Target, J.C. Penney, Herbalife and the Canadian Pacific Railway. Each has achieved some goals and whiffed on others.

My smartest investment

My smartest investment is buying shares of Kinder Morgan over time. It’s one of the largest pipeline companies in the U.S. and is less dependent on oil prices than it would appear. Years ago, its stock price had fallen along with oil prices, offering me a great buying opportunity. The first shares I bought have yet to show a positive return, but dollar-cost averaging can take care of that over time. – S.D., online

The Fool responds: You were savvy not only to buy shares of Kinder Morgan in the past, but to continue doing so over time. It’s smart to focus your dollars on the investments in which you have the most confidence. Don’t hold too few stocks, though; aim to diversify your money across 25 or more (in different sectors). After that, it can make sense to keep adding to some of your current holdings.

Dollar-cost averaging (investing a set sum on a regular basis) is also an effective strategy: When the shares are pricey, you’ll be buying fewer, and when they’re down, you’ll be buying more.

Kinder Morgan is a profitable business, generating billions in free cash flow annually – and its dividend was recently yielding a hefty 6.1%. Some worry about the company’s future as the world turns to alternative energy sources, but Kinder Morgan is investing in some alternatives – aiming, for example, to convert landfill-generated methane into renewable natural gas.