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PreMarket Prep Stock Of The Day: Disney

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upco

Benzinga · 03/13/2020 15:43

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Stock Of The Day: Disney

After a crazy week in the markets, investors may be having all kinds of regrets. Why didn't I liquidate all or some of my portfolio a few weeks ago or at least hedge my holdings? Or why didn't I go all in late Thursday?

Selling out or hedging is very difficult, especially after the markets initial reaction to the coronavirus was a flat-out rally to new all-time highs. On the other hand, going all-in late Thursday is after the fact. The markets could have just as easily been down a 1,000 points instead of up.

So when perusing the carnage from the last few weeks, the majority of investors are looking to "buy the dip", which over the last 10 years has been the correct call. Of course, timing is critical and chances are you're not gong to get the bottom.

What About The House Of Mouse?

As we all know, the travel and entertainment industry has been decimated. And for good reason. Who is thinking about traveling and even going out to a restaurant in some areas under the current circumstances?

For an investor regretting not owning Walt Disney Co. (NYSE: DIS) when it peaked in December at $152.97, they may be licking their chops to own it under $100. It traded down to $91.64 on Thursday, which marks its lowest level since September 2016, when it bottomed in that same area at $91.16.

Reasons Not To Buy

On Thursday, the company shutdown California's Disneyland for the rest of month. While the parks are closed, one would assume they will still pay their employees and refund customers that booked hotels and trips to the park during the closure. The company is also delaying the release of new movies, which will be more of a cash drain on the company. Finally, the huge amount of revenue being lost from the cancellation of sporting events from its ESPN and ABC stations may never be recouped.

Reasons To Buy

Considering the haircut the issue has taken from its all-time high, the issue trades at a much lower valuation that it's attempting to discount the revenue lost so far. From a technical standpoint, the issue has found temporary support in the same area as it did in September 2016, which technicians will call a "double bottom." However, other technicians will say there's no such thing as "triple bottom," meaning if goes down there again it will not hold.

Also, if somehow the coronavirus outbreak is contained and the U.S. does not have extended quarantines, business will slowly return to normal as well as the resumption of sporting events.

From a risk-reward perspective, purchasing shares of the issue at the $97 area, with a potential exit at the $90 area and a potential price target of at $114 may be enticing to some investors. Also, many investors may consider a partial position in the event it quickly rebounds or the flexibility to buy more if it continues lower.

Unfortunately, the outbreak of the COVID-19 virus, its containment and prospects for a vaccine are bleak for the time being. Therefore, the prospects for the company going back to business as usual are the same.

The author has no position in Disney stock.