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Globe and Mail
24-04-2025
- Business
- Globe and Mail
Is Disney Stock a Buy Now as Trump Tones Down Trade War Rhetoric?
With a year-to-date loss of 19.4% as of April 23, Disney (DIS) is among the bottom five constituents of the Dow Jones Industrial Average Index ($DOWI). Disney has been a consistent underperformer over the last few years, and while the stock's returns were in line with broader market last year, it underperformed in the previous three years. In response to underperformance under former CEO Bob Chapek, Disney brought back his predecessor, Bob Iger, to head the company in November 2022. The stock initially rose following the announcement, but now trades below the levels when Iger took over. To be sure, it isn't fair to blame Iger's policies for Disney's woes. If anything, under his leadership, we have seen some noticeable improvements in the company's performance, particularly in the streaming business. Specifically, Disney posted adjusted EPS of $1.76 in fiscal Q1 2025 that ended on Dec. 28, 2024, compared to $0.99 in the corresponding quarter in the fiscal year 2023, which was the first reported quarter after Iger's return. Why Has Disney Stock Dropped? The recent fall in Disney stock has been primarily due to concerns over President Donald Trump's policies taking a toll on its business. Economists raised the odds of a U.S. recession amid the U.S.-China trade war, and the rising fears of a recession are hurting stocks like DIS. Additionally, there are concerns over China retaliating against U.S. businesses, some of which we are already witnessing. For instance, China has restricted the imports of Hollywood movies. Disney operates two of its theme parks in the region - one in Shanghai and the other in Hong Kong. So far, China hasn't acted against these, but fears over Disney's business suffering in China are not unfounded, as in general, Chinese consumers are increasingly shunning U.S. brands like Nike (NKE), Apple (AAPL), Starbucks (SBUX), and Ford (F) for domestic alternatives. While Disney's prospects in China look relatively immune compared to these companies, it is still a risk that investors should be mindful of. Looking stateside, consumer sentiment has nosedived over the last couple of months while recession risks have spiked. Even if the U.S. economy can fend off a recession, the slowdown in consumer spending, particularly discretionary spending, is quite palpable. An economic slowdown and tepid consumer spending could hurt Disney's parks business. As Bernstein analyst Laurent Yoon aptly said, 'When the economy is not doing well, the parks' performance tends to follow that trend.' As for streaming, Disney might not have the same moat as Netflix (NFLX), whose business looks a lot more immune to a recession and might not be the first on the chopping block for most users. Moreover, the tourism industry – both domestic and international – could be a casualty of the trade war. A Bankrate survey in March showed that compared to 2024, fewer Americans are planning a summer vacation this year. International tourism looks even more vulnerable, and foreign tourists to the U.S. fell in double digits in March. International tourists are a key profitability driver for Disney parks as they, on average, tend to stay longer and spend more than domestic tourists. Disney Stock Forecast Wall Street analysts are, however, quite upbeat on Disney, and of the 29 analysts actively covering the stock, 21 rate it as a 'Strong Buy' while two rate it as a 'Moderate Buy.' The remaining six analysts rate it as a 'Hold' or some equivalent. Is Disney Stock a Buy? While Disney's earnings have grown significantly over the last two years, its share price has sagged, which has led to a contraction of its trading multiples. Specifically, the stock now trades at a forward price-earnings (P/E) multiple of 15.4x, which is at a discount to the average S&P 500 Index ($SPX) constituent. While Disney might see some earnings downgrades amid the tariff and economic uncertainty, I find the multiples attractive here. Disney has been testing investors' patience for the last few years, and just when it seemed the company had its house in order with the streaming business becoming profitable, it has been hit by the trade war. The Trump administration has dropped multiple hints of reconciliation with China even as the world's second-largest economy has denied any ongoing trade talks with the U.S., insisting on the withdrawal of what it calls 'unilateral' tariffs. There is no easy fix for the U.S.-China tariff war, but these fears should eventually abate, and at these levels, the downside looks quite limited for DIS stock given the valuation comfort.
Globe and Mail
18-03-2025
- Business
- Globe and Mail
Investors' Fed Meeting Worries Weigh Down the Dow Jones Today
The Dow Jones Industrial Average (DJIA) is slipping today as the Federal Reserve Federal Open Market Committee (FOMC) meeting starts today. This meeting has the Fed weighing interest rate cuts over the next two days. Results won't be out until Wednesday afternoon, but traders are still anxious about the central bank's decision. Light Up your Portfolio with Spark: Easily identify stocks' risks and opportunities. Discover stocks' market position with detailed competitor analyses. It seems likely that the Fed won't cut interest rates during its latest FOMC meeting. This comes alongside warnings of increased inflation in the U.S. and possible slowing economic growth, which could turn into a recession. Accounting for all these factors, experts predict the Fed will only announce two interest rate cuts in 2025. While investors may want more interest rate cuts, they seem to accept that one isn't coming after this FOMC meeting. That has the Dow Jones down 0.47% as of this writing. This builds on a 1.18% drop over the last three months and a 1.65% decrease year-to-date. Stocks Keeping the Dow Jones Down Today Turning to the TipRanks DJIA heatmap tool, traders will see which stocks are weighing on the index today. Many sectors are slipping today, with major drops in the tech market. This has Cisco (CSCO) and International Business Machines (IBM) seeing the biggest losses, with Microsoft (MSFT) not far behind them. The healthcare sector sticks out with pockets of green from UnitedHealth (UNH) and Johnson & Johnson (JNJ). How to Invest in the Dow Jones Industrial Average Index Investors can't take a direct stake in the Dow Jones as it's only an index. Instead, they can buy shares listed on it. Risk-averse investors will want to stick with stocks rising today, while those made of sterner stuff might consider buying shares down Tuesday in hopes of a rebound. Another option is buying shares of an exchange-traded fund (ETF) that tracks the DJIA. There are ETFs that bet on and against the success of the index. One popular choice in favor of the DJIA is the SPDR Dow Jones Industrial Average ETF Trust (DIA). See more DJIA ETFs
Globe and Mail
17-03-2025
- Business
- Globe and Mail
INTC Stock Forecast: Can Lip-Bu Tan Create the ‘New Intel' That Pat Gelsinger Couldn't?
Last week, Intel (INTC) appointed Lip-Bu Tan as its new CEO, and in his message to employees, he talked about creating the 'new Intel.' Notably, when his predecessor Pat Gelsinger took office in 2021, he also embarked upon 'transforming' Intel under the IDM 2.0 strategy, which in hindsight, we know did not go as planned. Gelsinger's strategy did not yield the desired results, and the once iconic chip company continued to sink deeper on an absolute as well as relative basis. The year 2024 turned out to be the worst year for Intel stock in more than one way. INTC lost 60% of its market cap — its worst price action in history — while posting a record net loss of $18.8 billion. The company announced 15,000 layoffs, again the highest in its history, and also had to suspend its dividend amid soaring losses and rising cash burn. If that wasn't enough, the S&P Dow Jones Indices replaced Intel with Nvidia (NVDA) in the 30-share Dow Jones Industrial Average Index ($DOWI). The announcement was hardly a surprise and a reflection on how Intel lost out to rivals over the years. It is no longer the chip industry bellwether it once was. What Went Wrong with Intel? Before we examine whether Intel's new CEO can turnaround the ailing company, let's examine what went wrong with the restructuring under Gelsinger. To be sure, at least on paper, Gelsinger's strategy looked solid. He intended to make the company a global leader in the foundry business by setting up factories in the U.S. and Europe, both of which are looking to support domestic chip manufacturing. He also put focus on innovation, especially AI chips where the company lost out big time to Nvidia. Intel was also looking to monetize its stake in some businesses and listed Mobileye Global (MBLY), even as it still holds the majority of the stake. The company has also been looking to list Altera, which it acquired for almost $17 billion in 2015. In a nutshell, Gelsinger wanted Intel to be a combination of Nvidia and Taiwan Semiconductor Manufacturing Company (TSM), which was never going to be easy. Both Nvidia and TSM have built a strong moat in their respective businesses. As things turned out, Gelsinger overestimated Intel's capabilities, which is aptly reflected in the poor performance of its Gaudi AI chip. Tan Wants to Build a 'New Intel' In his note titled 'Remaking our company for the future,' Tan talked about making the 'new Intel' and said, 'We will learn from past mistakes, use setbacks to strengthen our resolve and choose action over distraction to reach our full potential.' Tan said Intel will work toward restoring its 'position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before.' INTC Stock Forecast Wall Street took note of Tan's appointment, and Bank of America upgraded INTC from an 'Underperform' to 'Neutral.' The analyst raised the INTC target price from $19 to $25 citing the CEO's 'solid track record.' Bank of America did caution that 'The upside potential, however, is balanced against risks from a lack of AI roadmap and increasing competition from ARM-based PC and server CPU rivals.' Overall, Intel has a consensus rating of 'Hold' from the 37 analysts covering the stock and its mean target price of $24.43 is just about 1.5% higher than the March 14 closing price. Can Intel's New CEO Turn Around the Company? Intel, which became the world's biggest chipmaker in 1992, is now fighting for relevance. Comparisons have been drawn between Intel and other fallen giants like Nokia (NOK), Kodak (KODK), and Blackberry (BB), which once held dominant positions in their respective industries but are now shadows of their glorious pasts. I won't write off Intel yet, partially because of bipartisan support from Western politicians for the onshoring of chip production. The company is too big and too important for the U.S. to let it fail, and President Donald Trump has reportedly called for TSM's help to revive the company. Intel's sum-of-the-parts valuation could be more than the stock's current valuation, considering that the book value of its foundry segment's property, plant, and equipment is higher than the company's market cap. Notably, reports suggest that several companies, including Qualcomm (QCOM) and TSM, have expressed interest in Intel's foundry business, and the latter even pitched a joint venture to Nvidia, Advanced Micro Devices (AMD), and Broadcom (AVGO) to run that business. There is potential for value unlocking for Intel shareholders as the company explores its options under the new CEO. Corporate turnarounds are seldom easy, but I will continue to bet on Intel as the company now embarks on its second turnaround in just about four years.
