
Disney is off 39.09% year-to-date (YTD) and down by 45.98% in the last year. This makes it the worst-performing Dow Jone Industrial stock over those two periods.
You can see this by looking at the Barchart Dow Jones Indices Performance chart. In fact, if you click on the “YTD%Chg” column button, you can rank the stocks by performance for that period, as well as with the “52W%Chg” column button.

In fact, Disney is also the worst-performing stock in the last 3 months - down 32.36%, almost one-third. It also doesn't help that Disney does not pay a dividend, nor is it buying back any stock.
Be a Contrarian - Buy Disney Stock
Anyone who follows me knows that I am a contrarian investor. That means buying what everyone else is selling, like Disney stock. Let's look at the situation with this stock carefully.
Disney reported its Q1 earnings showing 23% higher revenue, but both revenue and earnings missed expectations by about 4%. Moreover, Disney’s free cash flow (FCF) generated was only 3.6% of sales, and given its heavy content spending, won’t likely rise much.

But on the positive side, people are flocking to its parks to see Mickey Mouse and all its exhibits. Moreover, its streaming revenues are growing as well. However, most of the 23% YoY growth came from its Disney Parks, Experiences, and Products division. In fact, the Parks division now accounts for one-third of revenue and almost half (47%) of its operating income.
That could carry the company through a recession since people always want entertainment. For example, the average of 27 analysts' earnings per share expectations for 2023 is $5.61, up 38% over the 2022 forecast of $4.06. This puts the stock on a very cheap forward P/E multiple of just 16.8x.
That is simply too low. For example, at 20x 2023 forecasts, the stock would be worth $112. We can use this to figure out what call options to buy.
Buying DIS Call Options
Investors might consider buying the $100 strike price call options about 6 months from now. That is because as a round number, there will be more liquidity. Moreover, it is only 6% above today's price, and it is below our $112 expected price target. That also leaves room for the call option price, allowing us to make a profit.
One might consider buying Nov. 18, 2022, $100 strike price calls. They trade for $7.20, but there are only 154 days until expiration. That might not be long enough. Consider the Jan. 20, 2023, calls at $100.00. They trade for $8.75 at the mid-point.

This means that the investor in these calls will be able to leverage his money by 10x. That is because the $94.34 Disney stock price is 10.87x the $8.75 call price over six months (271 days) from now.
Investors have to consider that the stock price must rise to $108.75 before there will be intrinsic value in the calls. That is 15.3% over today's price. That applies if the investor waits until the expiration of the calls. Prior to that, the call options could be higher or lower than the $8.75 price, depending on the volatility of the stock and the time value of money.
But from our standpoint, the $108.75 intrinsic value breakeven price is well below analyst consensus $112.00 price target. That was based on 20x earnings projections for 2023. So there is a very good likelihood of making money with this investment. And after all, this is what being a contrarian is all about - buying what everyone else is selling. In this case we leverage up by 10x using call options.
More Stock Market News from Barchart