We recently compiled a list of the Jim Cramer’s 10 Stock Picks You Need to Know. In this article, we are going to take a look at where The Walt Disney Company (NYSE:DIS) stands against Jim Cramer’s other stock picks.
In a recent episode of Mad Money, Jim Cramer views the current market as highly unpredictable and easily swayed by even the slightest news. He acknowledges that while some sectors are thriving, others are struggling, making it a mix of the best and worst of times depending on the industry.
“Look, this market is so ridiculous that you could knock it over with a feather or take it up with a breeze. I wanted to borrow from Charles Dickens: “It was the best of times, it was the worst of times.” But the simple fact is that this isn’t the worst of times—just the worst of times for stocks in certain industries, and the best of times for others. Or within the confines of some hideous action for the average, with the Dow sinking 626 points, the S&P plunging 2.12%, and the Nasdaq plummeting 3.26%. It was a nasty day, right into the close.”
Cramer explains that a seemingly minor purchasing management report caused a widespread sell-off, particularly hitting cyclical stocks, homebuilders, and tech companies connected to AI. Despite the panic, Cramer emphasizes that these sectors, especially semiconductors, oil, and housing, are actually performing well. The sell-off, in his view, was driven by irrational fears that these strong performances won’t last.
“Now, what makes this market so ridiculous in my eyes? We had some obscure purchasing management report that threw everything off this morning, causing a wholesale collapse of the cyclicals, along with the homebuilders and anything connected to technology, particularly the once-beloved data center plays with big AI exposure. Given the chaos after that manufacturing PMI number, you’d think the semiconductor, oil, and housing worlds were in free fall. But in reality, these companies are doing incredibly well. The sellers are just worried they won’t stay good for long.”
Pure Stupidity
He attributes the market’s reaction to what he calls “pure stupidity,” combined with the typical challenges the market faces in September. This seasonal weakness can become a self-fulfilling prophecy, leading to exaggerated reactions. Cramer believes that while the economy is slowing, the Federal Reserve is likely to cut interest rates in the coming weeks, which could benefit sectors like homebuilding.
“Frankly, I think this action represents pure stupidity, combined with the fact that the market is typically challenged in September. That’s what’s going on here, something that’s true empirically—to the point where it can become self-fulfilling. That’s how it felt today. Sure, the economy is slowing, but in a few weeks, the Fed’s going to cut interest rates, and you’ll wish you’d stuck with a lot of what was on sale today, like the homebuilders. They are the real winners in any move that would take down mortgage rates, which is what would happen if the Fed cuts.”
A Repeat of the 1999 Dot-Com Bubble?
Jim Cramer acknowledges that if a scenario like 1999 were to repeat, it could be disastrous for chipmakers and the tech industry surrounding AI. He respects Cembalest as one of Wall Street’s top strategists but feels his comparison to the 1990s might be too harsh. Back then, many companies were spending recklessly, but today, the company and its clients are among the most financially stable companies in history. The company faces little real competition, with no other companies close to matching its capabilities.
“A repeat of 1999 would indeed be devastating for the company and all the tech that surrounds it. As much as I think Cembalest is the best pure strategist on Wall Street—the best I’ve found—I found this piece a little harsh because we had many fly-by-night outfits spending like drunken sailors back in the 1990s. Now, though, the firm and its clients are some of the most well-endowed companies ever. The company doesn’t have any real competition, and no one is near them by their own proclamations.”
Nvidia CEO Jensen Huang has repeatedly emphasized that if tech giants don’t invest now, they’ll miss out on future opportunities when they lack the necessary infrastructure. He’s proven that the company’s platform pays for itself quickly, which was not the case in 1999.
“As the company’s CEO Jensen Huang has pointed out many times, if the tech titans don’t spend, they’re out of luck when some great use cases come along, and they don’t have the infrastructure for it. Remember, Jensen has proved that the platform pays for itself very quickly. That sure wasn’t the case back in 1999, was it? Of course, the company’s stock has become a total pariah right now after this amazing quarter because the world suddenly seems convinced that AI spending will peak soon, at which point it’s all over but the shouting. “
Despite the firm’s impressive recent quarter, its stock has become unpopular, with many believing that AI spending will soon peak and that the stock’s rise was overblown. Investors seem eager to push the stock back to its early August lows, around $90 after the company only delivered a major upside surprise, not the massive one they had expected.
“Stocks are getting slammed because most investors think the company’s run-up was too extreme, given that the company only reported a major upside surprise—not the kind of insanely huge upside surprise they’d come to expect. The sellers are eager to take the company back to where it was trading during the last visit to the penalty box in the first week of August, with the stock ticking as low as $90 and change.”
Cramer anticipates that sellers will return in force following news that the Justice Department has subpoenaed the company in an antitrust probe. However, he downplays this development, noting that such subpoenas are standard practice, questioning why the Justice Department didn’t simply ask the company some questions instead.
“I’m sure the sellers will be right back tomorrow morning after we learned tonight that the Justice Department has hit the company with a subpoena over an antitrust probe. Now, who cares? That’s standard practice. It’s shot first, second, and third. Though with the company right now, no one’s thinking, “Well, wait a second, why didn’t the Justice Department just ask them some questions?”
Our Methodology
This article covers a recent episode of Jim Cramer’s Mad Money, where he reviewed several stocks. It highlights ten large-cap companies that he recommended and looks at how hedge funds view these stocks. The article also ranks these companies based on the level of hedge fund ownership, from the least owned to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A packed theater of moviegoers watching a blockbuster film produced by the entertainment company.
The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Investors: 92
Jim Cramer has some reservations about The Walt Disney Company (NYSE:DIS), focusing on the company’s content and its stock value. He emphasizes that the issue is not with Disney’s content quality or its stock price but with how the market perceives them. Cramer points out that The Walt Disney Company (NYSE:DIS)’s content largely targets female audiences with movies featuring female protagonists, leaving a gap for young boys. Over the past decade, only a few films, like “Luca,” “Coco,” and “Onward”—the latter of which wasn’t very successful—address this demographic.
“Okay, so my problem is with Disney, and this is important—it’s the company and the content, not the stock. Someone at Disney right now is probably saying, “This guy doesn’t fully recognize the value of our content,” so please let me explain.
There have been only two and a half movies in the last ten years that fit a very significant but widely underserved demographic—young boys. My boys watch Moana, Inside Out, Encanto, Raya and the Last Dragon, Fancy Nancy, Frozen, Frozen 2, Encanto again—you know, all of this is great content, but, and it’s a big but—all of this content has female protagonists and coming-of-age stories, which are not highly relatable for young boys. There’s been two and a half—Luca, Coco, and Onward. Onward wasn’t even a big hit.
Again, I’m not going to disagree or agree on content. What I would tell you is that I think the Street does not recognize the value of the whole library. They don’t recognize the value that ESPN actually has. They don’t recognize that the theme parks are just magnificent gems. They’re focused on the labor problems, they’re focused on some of the issues you just mentioned, and they’re focused on what I think are important zeitgeist issues but are missing the point of the premium property that is Disney.
That’s why, as you know, we own it for the Trust, and why Jeff Marks and I are discussing buying more here because it is so low. That said, Disney has to find the right CEO, and once they do and the vision is really cleared up, people are going to say, “Why didn’t I buy Disney in the 80s? What was I thinking?”
The Walt Disney Company (NYSE:DIS) is a strong investment choice, supported by its diverse content library, impressive streaming growth, and recovery in its theme parks. The Walt Disney Company (NYSE:DIS)’s extensive collection, including beloved franchises like Marvel, Star Wars, Pixar, and Disney Animation, enhances its competitive edge in both streaming and traditional media. The Walt Disney Company (NYSE:DIS)’s streaming platforms—Disney+, Hulu, and ESPN+—have shown remarkable growth, with Disney+ alone surpassing 230 million global subscribers, reflecting the increasing shift towards digital content.
Moreover, The Walt Disney Company (NYSE:DIS)’s theme parks are recovering well from the pandemic, with higher attendance and guest spending driving revenue up. Ongoing investments in new attractions and park infrastructure are set to fuel further growth. The Walt Disney Company (NYSE:DIS)’s strong financial performance is evident in its Q3 2024 revenue of $24.5 billion, marking a 7% increase from the previous year and demonstrating solid profitability and cash flow. Under CEO Bob Chapek’s leadership, The Walt Disney Company (NYSE:DIS)’s focus on innovation and global expansion positions it for continued success and long-term growth.
Mar Vista Focus strategy stated the following regarding The Walt Disney Company (NYSE:DIS) in its Q2 2024 investor letter:
“The Walt Disney Company’s (NYSE:DIS) shares declined after its earnings release, even though the company exceeded recently upgraded financial forecasts. While Disney+ and Hulu reached a milestone by turning their first quarterly profit, the company cautioned about theme park attendance returning to pre-pandemic norms. This signals a deceleration following a period of exceptional growth, impacting the stock as theme parks and experiences account for roughly 60% of Disney’s earnings. Despite broader consumer worries, Disney’s stock is still trading with a significant discount to fair value. We expect the gap between Disney’s market price and its intrinsic value to shrink as its streaming division evolves and increases profitability over time.”
Overall DIS ranks 3rd on our list of Jim Cramer’s stock picks you need to know. While we acknowledge the potential of DIS as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DIS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
