One of the best things for a top portfolio manager to see is one of the stocks on the watch list have a temporary hiccup and get sold off to a level where a position can be added. It’s not unusual for good companies to have either a one-off bad quarter for earnings, or a headline incident that creates selling pressure. Whatever the reason, when quality is put on sale, the top portfolio managers are usually buyers.
At 24/7 Wall St., we are impressed when we see consistent positive results from a money management team year after year. One of the top portfolios we cover is the UBS Quality Growth at a Reasonable Price, or Q-GARP. It is slightly ahead of the S&P 500 this year and has trounced the index since inception in 2007.
In a recent UBS report, the Q-GARP managers added an outstanding blue chip, Walt Disney Co. (NYSE: DIS), to the portfolio and removed Illinois Tool Works Inc. (NYSE: ITW).
The entertainment giant has suffered this year, as many have worried about subscriber losses at ESPN, so the Q-GARP team think the time is good to add Disney to the portfolio. It operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels, and ABC Family, as well as UTV/Bindass and Hungama. The company owns eight domestic television stations.
It also owns and operates the Walt Disney World Resort in Florida that includes theme parks; hotels; vacation club properties; a retail, dining and entertainment complex; a sports complex; conference centers; campgrounds; golf courses; water parks; and other recreational facilities.
The company also operates Disneyland Resort in California; Disney Resort & Spa in Hawaii; Disney Vacation Club, Disney Cruise Line and Adventures by Disney; and Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort. It also licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan.
In addition to opening a brand new $3 billion theme park in Shanghai China, Disney also recently announced that Netflix had reached an exclusive deal with Disney giving it streaming rights to Disney films, a win-win for both of the companies.
The UBS team cites strong performance at its theme parks and film business should drive solid earnings growth over the next few years as they add the company back to the portfolio.
Disney shareholders receive a 1.4% dividend. The Thomson/First Call consensus price target is $109.11. The stock closed Thursday at $98.38.