Barrons Review: Is the Magic back at Disney?

We’ve held onto The Walt Disney Co. (DIS) for quite some time.

I’ve mentioned it in a positive vein repeatedly — over a year ago on PBS with Paul Kangas, and then again here (Tribune Media), and even a year before that on the Pixar takeover.

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


What's been said:

Discussions found on the web:
  1. John Navin commented on Feb 25

    Speaking of measuring metrics, I come up with 3 mentions of “quant” and 2 mentions of “quantitative.”

    You don’t run a hedge fund, do you?

  2. Tom B commented on Feb 25

    “The Mouse” has been looking better since Steve Jobs got Eisner canned.

  3. sam commented on Feb 25

    when i hear quant, i flee.

  4. Barry Ritholtz commented on Feb 25

    Understand what Quant means: Its applying mathematical principles to market data to derive an objective reading — on stocks, sectors and the overall markets.

    There are many different ways you can use this data. The hedge funds that blew up used a long/short system that had them fully invested in lots of sub-prime stuff.

    We don’t do that; rather, we rank 8000 stocks on a 0-100 scale. We then run specific screens on the ranked universe

  5. Chief Tomahawk commented on Feb 25

    BR: After your previous mention of FusionIQ (The Four Horsemen posting), I went to the site and checked things out. Sounds like it’s $30 a month for the first six months.


    I got a seldom received “certificate validation error” from my WindowsXP browser when I first arrived. I didn’t think twice about it until I was about to enter my credit card information. Then I looked at the top of the webpage and the masterlock icon wasn’t present (usually indicative of a secure site.) So I didn’t enter my card info for fear of it getting swiped. I sent a message to the FusionIQ “Contact Us” link. Still waiting to hear back. Maybe this isn’t your area of oversight, but I thought you should know.

  6. me commented on Feb 26

    Disney Parks may run into trouble this year. They have pissed off the base.

    For several years they had the Disney Dining Plan option. For $38 a day, per person it included some snacks, a counter service meal, and a table service meal. The table service meal included an appetizer, main course and desert. It also included the tip.

    The Disney idea was to keep people in the parks and on the Disney property.

    But why mess with success? Well they did this year.

    They raised a lot of menu prices about 15%. The Dining Plan no longer includes an appetizer or tops. So eating costs about 30% more for the same $38 bucks. They tried to keep it s secret and didn’t warn buyers of the change and hostilities broke out as patrons no longer left tips and stormed out.

    Now the guests are reverting back to the old days of leaving the parks and going off property to eat, taking with them their dining dollars and extra souvenirs dollars they spent when they stayed on the property.

    Long time Disney fans are pissed.

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