The Global Stocks That Got Away

As a guiding principle with investing, being patient, and even doing nothing, are very good traits to live by.

Unfortunately for value-based investors like me and Frankie, those traits can also mean missing out on great opportunities from time to time.

And so it goes with my first shortlists of US based stock ideas.

You may recall the three stock ideas I was considering back on 10 June 2018, some 43 days ago now:

I was a little slow in making the decision, so Frankie had a look at these about two weeks later, speculating on how the changes in share prices over that period might affect my decision to invest in any of these stocks.  The question was whether I would be ‘anchored’ to the prices on the date of my original analysis, and / or whether I had set a price ‘threshold’ under which I would buy:…

Global Gary’s First International Stock Idea Shortlist

 

Disney was the first international stock holding to make it into the Global Fund a few weeks ago.

Since then, I’ve been itching to add the next quality international business to the portfolio. I’ve been perusing a heap of other financial and investment blogs out there, and my list of stock ideas is growing ridiculously fast as a result!

I’m starting in the USA for now, where most of the best companies in the world reside. I’ve picked out 3 of these ideas as a shortlist for the next investment in the Global Fund.

Let’s have a quick look at each, as well as some insights from the other bloggers and investors who’ve been researching and investing in them…

1) Pepsico

A Dazzling Disney Discounted Cash Flow Analysis (and a Dangerous Decision Making Tool)

After sharing my first International stock purchase of Disney in the previous post, some readers have asked for a little more detail around the business and the numbers.

Well, I’m going to try and give you much more than you bargained for, with some detailed Discounted Cash Flow (or ‘DCF’) Analysis!

The goal of this post is not to convince you that Disney is an awesome investment. It’s to show you how to use some valuation concepts, particularly the DCF analysis, but in particular, highlight the risks and limitations of relying on this too heavily in isolation.

So strap yourself in – it’s a long post with plenty of analysis, and we’re going to touch very briefly on a few theoretical valuation concepts. But don’t worry, we’ll still include plenty of charts and pictures…

Here’s an overview of what we’ll cover in this post:

  • Overview of Disney
  • History of financial performance
  • Valuation methods
  • Cash flow forecast assumptions
  • Other valuation assumptions
  • Sensitivity Analysis
  • And most importantly – The DANGERS of the DCF!

Overview of Disney

I’m guessing anyone reading this will know of Disney, particularly the movies and the theme parks that it’s so famous for, as well as some of the history starting with Mr Walt Disney back in the 1920’s.

From a business perspective, Disney manages its operations in four main segments:

  • Media Networks – Disney operates cable programming services under brands including ESPN, Disney and Freeform, broadcast businesses including ABC TV Network and eight other television stations, radio businesses including ESPN Radio network, and Radio Disney.
  • Parks and Resorts – the Magical Disneyworld in Florida and various Disneyland resorts and theme parks around the world, including California, Paris, Tokyo, Hong Kong and Shanghai, as well as a number of resort hotels and vacation club properties, and other recreational facilities.
  • Studio Entertainment – Disney produces live-action and animated motion pictures primarily under the Walt Disney Pictures banner (all the classics!), as well as Pixar, Marvel and Lucasfilm which Disney acquired in recent years.
  • Consumer Products and Interactive Media – Disney licenses its trade names, characters and intellectual property to various manufacturers, game developers, publishers and retailers throughout the world. This also includes retail and online distribution of products through The Disney Store, shopDisney.com, shop.Marvel.com and wholesale distribution direct to retailers.

Here’s a breakdown of the revenue and operating profit contribution from each of these four segments in 2017:

Global Gary’s First International Stock – Disney

After dumping half my cash into the VGS index, I’ve been itching to put the rest to work in stocks that I think will outperform over the long run.

I’m still looking around for ideas, and will share my first shortlist very soon. But in the meantime, one of my all-time favourite companies is looking like good value at the moment, so I’m excited to start the international stock holdings off with…

We know by now that Frankie likes to do some fancy analysis when sharing his investment decisions. I’m more a ‘keep it simple’, bullet-point kind of guy, so here’s my brief summary on why I’m investing in Disney:

The Company:

  • Disney is highly likely to be around 20 years from now – check
  • Disney has a huge competitive advantage in the content it owns – an unmatched theme park business and film content that just keeps getting better and better. And as a result…
  • Disney is highly likely to be bigger and better 20 years from now – check.
  • ESPN is causing some issues at the moment, but probably won’t be the area that’s driving its growth 10 years from now

The Numbers:

  • P/E ratio – around 14.4x based on 2018 EPS estimates – hasn’t been this low for over 5 years
  • Return on Equity – very healthy in the low 20%’s, and has been improving over the past few years