While stocks have had a strong start to the year, corporate earnings show a slowdown. And interest rates are still on track to rise. Investors should generally be cautious about long-side ideas right now. One way to find the best opportunities is to look at where big-name players are going.
Besides making large purchases of shares, which can help the price rise, some companies may attract interest from activist investors. These investors can help management make more profitable decisions.
Currently, activist investors have shown an interest in The Walt Disney Company (DIS). Billionaire Nelson Peltz is the latest such investor, who unveiled a 35-page presentation on the company’s costs.
The entertainment giant lost just over a third of its price in the past year. And while revenues rose 9 percent, profit margins have shrunk to under 4 percent. An improved focus on costs could help boost profitability, even if the overall business remains slow this year due to a slowing economy.
Action to take: Shares are fairly valued at 25 times forward earnings, down from 140 times earnings at the end of 2021. If the company can improve its profitability, shares should get back to their long-term track record of consistent low-double-digit growth. Shares look like a buy in the $100 range.
For traders, the July $120 calls would benefit from any announced changes that lead to a jump in shares in the first half of the year. Last going for about $3.05, traders can likely see mid-to-high double-digit gains.
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.