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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

House of Mouse offers challenges and potential

Disney plans to nearly double investment in its parks and resorts segment to $60 billion over the next 10 years.  (Bloomberg)

Weak financial performance has scared many Walt Disney (NYSE: DIS) investors away, but are they overlooking Disney’s most valuable asset?

Millions of people visit a Disney theme park every year, and its movie studio business is one of the most profitable in Hollywood.

But across all its business segments, the House of Mouse hasn’t posted the financial results investors are looking for.

This has sent the stock down significantly – presenting a great buying opportunity for those who believe in Disney’s future.

In the first three quarters of fiscal 2023, adjusted diluted earnings per share fell 9% year over year to $2.94. Weak advertising revenue at Disney’s networks, including ABC, and operating losses in streaming services are partly to blame.

The bright spot at Walt Disney right now is the parks, experiences and products segment.

Through the first three quarters of the fiscal year, segment revenue grew 17% year over year to $24.8 billion, while operating profit totaled $7.6 billion, up 20%.

Disney just announced it will spend $60 billion over the next 10 years to expand and enhance its parks and cruise fleet.

Disney may sell off some less lucrative businesses, and those proceeds could help pay down its significant debt. Long-term investors might want to take a closer look at the company.

Ask the Fool

Q. What’s an “actively managed” mutual fund? – B.G., Rockville, Maryland

A. There are two strategies for managing a mutual fund: active and passive management.

An actively managed fund is run by financial professionals who study and select various investments for the fund.

A passively managed fund, in contrast, needs little management: It simply tries to mirror an index (or a specific part of the market), aiming to hold the same securities and deliver roughly the same return, before fees.

An S&P 500 index fund, for example, will typically hold the 500 stocks in that index.

Most actively managed stock funds actually underperform the benchmarks they’re trying to beat.

That’s partly because index funds are far less costly to operate and also tend to charge much lower fees. It’s generally a good move to have some, or much, of your long-term money in index funds.

Research funds at morningstar.com, and learn more at fool.com/how-to-invest.

Q. Is it a smart strategy to buy stocks when they’re near their 52-week lows and sell them when they’re near their highs? – L.T., Clayton, Missouri

A. Panning for gold among stocks that have fallen sharply can be rewarding, as great companies’ stocks can occasionally be punished due to various temporary issues or because the overall market drops. Just research them enough to make sure there are no lasting problems.

Think twice about selling a stock near its high, though.

There’s a good chance the company is performing well, and it might still have a lot of growth ahead; you don’t want to miss out on future gains.

It’s best not to focus too much on highs and lows – just compare a stock’s current price to where you expect it to go.

My Dumbest Investment

I once owned 3,000 shares of Starbucks, but sold them a long time ago. D’oh! It’s had three stock splits since then. – R., online

The Fool responds: It’s fair to regret selling shares of Starbucks long ago, but don’t get too hung up on stock splits, as they’re much less meaningful than many people realize.

You must have bought your shares before April 30, 2001.

Let’s say an investor like you bought 100 shares on Jan. 1, 2001, for around $44 apiece.

Their total investment would have been $4,400.

Starbucks shares split 2-for-1 in April 2001, in October 2005 and in April 2015.

That would have turned their 100 shares into 200 shares, then 400 shares, and, finally 800 shares.

They wouldn’t have been suddenly richer with each stock split, though, because with each split, the stock price was halved, keeping the total value the same.

Still, as Starbucks performed well over time and grew its revenue and earnings, its stock price followed suit.

If your fellow buyer hadn’t sold, they’d have 800 shares recently trading for around $93 apiece – for a total value topping $74,000.

Hindsight is 20/20, but if you believed in Starbucks back then, you’d have done well to hang on. If not, selling was reasonable.