September 8, 2014 - Don't Bet Against This Mighty Mouse
As summer concludes, life falls back into a familiar routine: school, sports and cooler weather. Soon the leaves the will change and winter will be here.
It has been a good year so far for stocks with broad-based advances across the board. Unemployment may still be higher than ideal, and there are plenty of worries around the world with Russia misbehaving and violence in the Middle East. While not good, it seems like there is always trouble someplace.
If you want to totally forget about the troubles of the world, you can always turn on the television. If you are into sports, Fall is the season for football, which is by far America's most popular televised sport. ESPN, the leading sports network, televises countless college games each week, plus it is the host to the popular Monday Night Football franchise. In addition to that, much of the non-game programming on the ESPN family of networks if given over to discussions of football during the season, making the channels a destination for football fans even when there aren't any games being played. Sports have been popular with advertisers recently as they are one of the few events people watch live, and thereby view advertising without the opportunity of skipping it.
Disney owns an 80% stake in ESPN, in addition to owning the ABC network and the wide variety of other, Disney-branded, properties. Growing consumer confidence and the general uptick in consumer discretionary spending is helping Disney's revenues rise. More people are going to theme parks and advertisers are paying higher rates. The company expects revenue growth of 8% in fiscal 2014 and 6% in fiscal 2015. The stock has seen earnings rise from $1.76 a share in 2009 to an estimated $4.25 a share in 2014. Disney stock has also been a steady uptrend rising from $40 two and half years ago to $90.94 now.
Chart courtesy of stockcharts.com
Take a look at a covered call in Disney. With the stock at $90.94 look at the January 2015 $92.50 call for an $88.00 net debit ($90.94-$2.94=$88.00). This covered call has a 5.1% assigned return rate over the next 135 days for an annualized return rate of 14% (for comparison purposes only). The covered call also gives the stock 3.2% downside protection. Last year Disney paid an $0.86 dividend to holders of the stock on December 12 and the company should pay a similar dividend this year. That will add roughly another 1% to the return on the position.