Investor Jerry Jordan of the Jordan Opportunity Fund believes that shares of the media giant are ready to fly.
By Scott Medintz, contributor
Jerry Jordan calls himself a "thematic" growth investor. He looks for big-picture trends and picks companies poised to benefit from them. The approach serves him well: His $116 million Jordan Opportunity Fund TK earned investors a five-year annualized return of 7.3% through the end of 2010, vs. a 2.3% average return for the S&P 500 TK over the same span. Here's why he's been loading up on shares of Disney (DIS).
1. Content will (eventually) be king
Media has underperformed for over a decade, argues Jordan. Content producers have received short shrift from investors while distributors – Apple TK , Netflix TK -- got all the attention. "That didn't make any sense to me," he says. "I didn't buy my iPod to look at its sleek functionality. I bought it to access content. And I think providers are going to wake up and start cranking up their pricing." Exhibit A: Jordan points out that Disney's ESPN recently pushed price increases onto cable companies.
2. Even a lukewarm economy will boost growth
After several tough years, Disney's cruise line and theme park businesses are "coming back gangbusters," says Jordan. But Disney doesn't need a hot economy to work its magic. The company's numbers held together even when oil prices were spiking in 2008, he argues, because blue-chip entertainment is resistant to economic dips. "Unemployment at 8% is going to stink for the average person," he says. "But the average person is not going to stop watching TV or going to the movies."
3. Disney’s strong brands have global appeal
"You can walk into a rural village in China and people know the name Disney and Disney's characters," says Jordan. "It can open a movie anywhere." (Not any movie: This year's animated Mars Needs Moms TK is a major box-office flop.) Jordan believes that the power of Disney's brands will also help drive renewed growth in its theme parks. "Remember, 500 million to 800 million people in emerging markets joined the middle class in the past 10 years and have never been to Disney World," he says.
4. Despite recent gains, the stock is still cheap
Wall Street is predicting earnings per share of $3 for 2012. "I think that number is too low," Jordan says. "It should probably be more like $3.15 or $3.25. This is a company that can grow earnings 30% this year and 20% next year." At a recent price of $42, Disney trades at 18 times trailing earnings. With increased pricing power, Jordan expects the stock to command a higher multiple in the future. "I think the trailing P/E can get to 25," he says. "That gets you to a price of $75 or $80 by the end of 2012."
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