Some companies are simple, offering only one product or service. Others have many parts. And in bear markets, complicated companies may end up trading for less than the sum of their parts. That can attract value investors, as well as activist investors.
Investors who can determine the true value of a company with a large number of different moving parts can potentially see big returns when there’s a divestment, successful activist investment, or even just a market turnaround.
One company that may be worth more than its parts right now is The Walt Disney Company (DIS). The entertainment giant operates film studios, theme parks, and cruise lines, among other businesses. And a recent activist campaign has fizzled out after the potential to sell the company’s valuable sports franchise, ESPN, failed to get any traction by management.
Nevertheless, investors who buy now can get a world-leading entertainment business and a reasonable price today at just 21 times earnings.
Action to take: Shares are worth accumulating under $120 per share. Most lines of the business are holding up well, with consumers still spending across the board. The downside? The company suspended its dividend in 2020 and hasn’t brought it back yet.
For traders, the January $135 calls last going for about $2.95, offer mid-double-digit returns in the coming months. Traders may want to look at scaling into the trade, using any down day for shares as a time to buy, while selling on the way up.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.