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Disney is my Top Pick, Paul Harris says

Netflix stock may be getting hammered but that doesn’t mean investors should steer clear of all the streaming content providers. Portfolio manager Paul Harris of Harris Douglas Asset Management thinks Walt Disney (Walt Disney Stock Quote, Charts, News, Analysts, Financials NYSE:DIS) is a great choice right now, not only due to its streaming service and media empire but for the return of its theme parks to their full glory.

“We’ve owned the stock for quite a while,” said Harris, who named Walt Disney as one of his top three picks for the next 12 months on a BNN Bloomberg segment on Thursday. 

“I think there are two issues, one is that Walt Disney, when you look at their their revenue, 41 per cent of it comes from the parks and so the parks business is a very important part of their overall business. And you’re seeing better numbers coming out of that area but that thing really has to be going at full tilt for them to generate the kind of returns that we’re looking for,” he said. “But I think that will happen over a period of time, especially if the cost of flying is more expensive and people will travel to the parks in the United States.”

“[Second], I think they’ve got some really great big blockbuster films coming out on the Marvel side this summer,” Harris said.

The market continued its assault on Netflix’s share price this week after the streaming giant announced quarterly earnings which featured a dramatic loss of 200,000 subscribers, the first such drop in over a decade, with management calling for slower growth ahead as Netflix deals with both a saturated market and rising competition.

“Our revenue growth has slowed considerably,” read the company’s letter to shareholders on Tuesday. “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.”

The news sent shares plunging 35 per cent in Wednesday’s trading session, pulling $50 billion off the company’s market cap. Coupled with another major drop in January and a general market downturn on tech and growth stocks, Netflix’s share price is now at levels last seen in early 2018, giving NFLX about one-third of its value only a few shorts months ago.

Disney’s share price, by comparison, might not look as bad but the stock is still off 39 per cent from its highs of March, 2021, and is currently down about 22 per cent year-to-date.

But Disney’s diversified assets make it a better bet than Netflix, Harris said.

“We’ve seen what happened with Netflix. There’s just more competition on the streaming side. But Disney+ has grown quite considerably relative to the other competitors and I think they have the ability to bring in a lot of content from all their different areas,” Harris said. “I think Disney+ will continue to do well. What’s important about Disney is that they’ve got this kind of range of content, which is from little kids to adults. That’s really beneficial.”

“We really like it. I think it’s a good time to own the stock here. They’ve got this great brand name and they will continue to do well over the next several years as we come out of this COVID issue,” he said. “So, we like it and we think it’s a good time to buy it at these levels and I really think that the parks business will grow over the next several years to where it was before COVID.”

Disney’s Parks, Experiences and Consumer Products division saw revenues double year-over-year in its most recently reported quarter, the company’s Q1 fiscal 2022, delivered in February. Meanwhile, subscriptions to Disney+ grew by almost 12 million and revenue per user grew by 15 per cent year-over-year.

Another fan of Disney over Netflix is DCLA portfolio manager Sarat Sethi, who thinks whereas Netflix may have been a COVID play, Disney and its parks are a good reopening bet.

“Netflix was another example of the pull forward that we had in COVID,” said Sethi, speaking on CNBC on Wednesday. “For me, Disney is a complete reopening. I think as the theme parks open up and as Disney has pricing power again and demand — there’s this whole revenge economy — and Disney’s stock is reflecting it already. It’s not like it’s trading at all time highs and it’s coming down.” 

“I think we’ve always known that companies like Disney for Disney+ that they have to execute and they’ve said that they’ve got to get more viewers, but it’s also going to be what I think of as a loop, that people who are going to subscribe to them are going to go to theme parks and it’s going to be all different types,” he said. “But I’m not buying Disney because of the streaming service. I think it’s an add-on and I think investors have to be very, very careful as to discern what is really going to grow going forward on the streaming service.”


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