CWS Market Review – November 22, 2022

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Bob Iger Returns to Disney

The big story on Wall Street, at least not involving the letters FT or X, is that Bob Chapek has been fired as the top mouse at Disney (DIS). The company said that Bob Iger would be returning. So they’re changing Bobs. This is especially interesting news to us because Disney had been a Buy List stock.

We ditched Disney at the end of last year and that appeared to be a shrewd move on our part. The stock was down about 40% for the year until last week. After the news of Iger returning, shares of Disney rose as much as 9.99% in Monday’s trading.

Pro-tip: If the news of you leaving your job causes the value of the company to increase instantly by $16 billion, perhaps it wasn’t meant to be.

Disney was a tough purchase for us because we got many of the big things right. We thought that Disney’s streaming service would be a hit, and in the initial months, it proved to be much better than expected.

We added Disney at the end of 2018 at $109.65 per share. The earnings reports were quite good. By April, shares of Disney got to $142 and by November, the stock was over $153. I felt vindicated. I was suddenly a genius!

Then came Covid and the game completely changed. Within a few days, shares of Disney plunged to $80. Sadly, I was no longer a genius. Our entire profit had been wiped out in a few weeks. The whole world got locked down and that included Disney World.

I remember that in an interview, I described Disney as a company that seemed to be tailor-made to be harmed by Covid. It’s actually rather remarkable. Disney’s business is movies, sports and theme parks. If that’s not enough, they also have a cruise line. Everything Covid wrecked is where Disney stood. This is also when Bob Chapek took over.

But then it appeared that Covid would be a big help for Disney. Everyone cooped up in their homes could just stream their way to Disney’s catalog. On top of that, the government and the Fed were throwing tons of money Wall Street’s way, so of course Disney would benefit.

Shares of Disney soared. Less than a year after hitting $80, Disney got to $200! Once again, I was a genius.

Oddly, Chapek seems to have improved in recent months. Over the summer, the company had a solid earnings report. Profits were up and Disney was becoming a major rival to Netflix. The board even extended his contract. Everything seemed great at the Mouse House.

That is, until Disney’s last earnings report which was a disaster. The theme park business was ugly. The streaming business was ugly. ESPN was ugly. Everything everywhere all at once turned ugly.

The streaming service lost $1.5 billion. In one day, Disney’s stock fell 13%. That was its worst day since 9/11. It seemed like Wall Street got blindsided.

Despite the losses, Chapek was very optimistic for the business. So much so that it damaged his credibility. (Lesson: people dislike spin more than the actual bad news being spun.) This was especially tough on Disney because the theme park business has gotten much better. Also, activist hedge funds have been putting pressure on the company.

I didn’t realize it at the time, but the earnings report appears to have been the catalyst that set the board in motion. Now Iger has been hired to be Disney’s CEO through the end of 2024. Bear in mind that Chapek was Iger’s handpicked choice to follow him.

Chapek made several missteps and his relationship with Iger turned cold. Disney also found itself in the middle of several high-profile political arguments. I wonder how much of this was an Iger-led coup. His prints may be near the dagger.

Chapek’s major business decision was to put Disney’s streaming business front and center. The business also includes Hulu and ESPN+. Chapek named his protégé, Kareem Daniel, head of a Disney’s Media and Entertainment Division. Iger didn’t waste any time firing Mr. Daniel on Monday.

In this case, we were ahead of the game. We decided to get rid of Disney at the end of last year when the stock was at $154.89. While that was down from Disney’s high, it turned out to be a very good exit price. The stock was recently as low as $86 per share.

Now I’m not sure if I was a genius or not. In three years, we made 45% in our Disney investment. We got in at a bad time and then waited too long to get out. Still, we got out.

Overall, I’m not sure if changing the person at the top is enough to help Disney. The problems are deep and the entertainment landscape is changing quickly. That’s a common myth, that a change in leadership can revive a company. Sometimes it can, but the problems are often very complex.

The broader lesson on Disney is that we did our homework, and we were vindicated. Still, the story changed, and we were smart enough to cut ties. It wasn’t a massive win or a massive failure. We made money and we moved on. On Wall Street, that’s good enough.

In the near-term, Iger’s re-installation at the top will be a morale boost; but for now, I’m going watch Disney’s stock as a spectator.

Stock Focus: IDEX Corp.

This week, I want to focus on IDEX Corp. (IEX) which is another one of those boring mid-cap industrial stocks that seem to get little attention. The corporate name is derived from “innovation, diversity and excellence.” IDEX is based near Chicago, and it currently has a market cap of about $18 billion.

IDEX is not to be confused with Ideanomics which has IDEX as its ticker, or IDEXX Laboratories.

IDEX is a highly decentralized organization. The company owns 45 largely unconnected businesses. It might be more convenient to list what businesses they’re not in. IDEX makes things like fluidic systems and optics systems and also fire and rescue equipment. Not so sexy, is it?

Still, IDEX’s performance is worthy of respect. Since 1990, the stock is up 120-fold. IDEX now has 8,000 employees and manufacturing operations in more than 20 countries. The company is divided into three main units: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety / Diversified Products.

The company is having a very good year. Last month, IDEX reported Q3 earnings of $2.14 per share. That beat the Street by 14 cents per share, and it was up 20% over last year. The CEO said, “In the third quarter, we achieved record sales, double digit organic growth across all three of our segments and solid operating margin performance driving record EPS and strong free cash flow generation.”

The company also raised its guidance. IDEX said it expects to make between $1.92 and $1.97 for Q4. That implies full-year earnings of $8.04 to $8.09. If that’s right, it would be an increase of 17% to 18% over last year.

As a conservative estimate, I’d say IDEX can make $8.50 per share next year and $9 per share in 2024. That would give the stock a forward P/E of around 26. That’s high but not unreasonably. Unfortunately, the shares have gained 33% over the last five months. Alas, we can’t invest in a rearview mirror.

CWS Earns Its Fifth Star

We had very good news this week. Morningstar awarded CWS, our exchange-traded fund, its fifth star. This is a big deal.

We got it for our three-year and five-year performance, plus our three-year risk-adjusted performance. The ETF is based on our Buy List.

Here’s the press release from AdvisorShares:

BETHESDA, Md., Nov. 22, 2022 /PRNewswire/ — AdvisorShares announced that the AdvisorShares Focused Equity ETF (Ticker: CWS) has received a Five-Star Morningstar Rating™. CWS earned five stars for its overall (out of 535 funds), five stars for its three-year (out of 535 funds) and five stars for its five-year (out of 494 funds) risk-adjusted returns in Morningstar’s Mid-Cap Growth category, as of October 31, 2022.

The AdvisorShares Focused Equity ETF bases its investment strategy on Eddy Elfenbein’s popular Crossing Wall Street “Buy List.” Elfenbein’s Buy List has published annually since 2006 and carries a wide following. The ETF applies a buy-and-hold strategy: it invests in the stocks of well-run companies that have a history of marketplace dominance, rising sales and earnings, reasonable value, and a record of rising dividends.

Elfenbein believes that a disciplined buy-and-hold strategy is ideal for riding out market storms. CWS strives to buy the highest-quality stocks at the lowest possible prices. By focusing on value, CWS aims to reduce its risk to broad-based market drops. A commitment to value also aids long-term capital appreciation.

CWS also has an innovative fulcrum fee structure where the management fee is directly tied to the ETF’s performance.

Past performance is not indicative of future results. For standardized and month-end performance and more information about CWS, please visit advisorshares.com/etfs/cws.

AdvisorShares regularly hosts live webinars featuring portfolio managers and strategists, including Mr. Elfenbein and other leading industry experts. You may learn more and register at the AdvisorShares Event Center for upcoming event sessions and educational insights.

Here’s our recent performance. We’re the black line. The S&P 500 ETF is the blue line.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

Posted by on November 22nd, 2022 at 7:08 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.