We’ve held onto The Walt Disney Co. (DIS) for quite some time.
Why? A few years back, our quant tool (an earlier version of the FusionIQ software) had Disney highly ranked (12/05/2006). Since then, the shares have performed rather well, especially as the US dollar weakened.
But back in 2005/06, analyst coverage was rather neutral. Well, it turns out that the fundie guys missed the boat, while the unbiased quant assessment turned out to be much better at stock picking.
Since last year, however, there has been a deterioration of the many factors that go into the quantitative ranking of Disney: The short and intermediate term trend was broken, money flow slowed down, and institutional ownership slipped. The quant ranking of DIS started to drop to bearish levels (below 70), prompting us to exit the positions in our managed accounts.
Fast forward to this weekend’s edition of Barron’s: They had a glowing cover story titled "The Magic is Back" about Walt Disney and its prospects for the future. Problem is, its a few years late to the party.
Rather than merely assume Barron’s cover story is a contrary indicator, we decided to run Disney through the system to generate a new unbiased metric. As seen in the chart below, Disney’s master quant ranking is now down to only a 58 out of a possible 100.
Maybe there is some magic left in the kingdom, but objectively speaking, its not showing up in our system. With only a 58 ranking, I cannot tell if the magic has come and gone, or if its already reflected in the share price.
If you want to invest in Disney shares, then perhaps your money would be better served waiting for the quantitative ranking to improve. We consider it bullish when its ranking score moves back over 70 again. (I will set up an email alert based on ranking change and post it here if and when that occurs).
Disney (DIS) daily
click for larger chart
Chart courtesy of FusionIQ