Disney's Bonds?

Not many stock investors look at how a company’s bonds are trading as a way to understand what they are making bets on. But they should. Stocks or bonds, it’s the same underlying company that issues both, but with this difference. For a stock investor to do well, the company has to do well. For a bond investor to do well, the company just has to not fail. So, what do the rating agencies think of Disney’s debt? Moody’s rates it A2 and writes a thoughtful, though all but giddy review of the company. S&P rates Disney’s debt more conservatively at two notches lower. (BBB+)

Them who traffick in bonds know that looking at ‘agency-assigned’ ratings is only a small part of the vetting process. What really matters is how the debt is being traded and from which ‘market-implied’ ratings can be derived. If the two are in synch, then the agencies’ ratings can be trusted. If not, prudent investors bet with what the market is saying. So, how is Disney’s trading? Some quick comps suggest that Moody’s estimates of Disney’s prospects are correct and that the company will get itself turned around by the end of next year. That should be good news for you longs, but only if you’re the patient type with a very long-term view.

I look at the matter differently. DIS is part of the DJIA 30, but a very small part of it at just a 2.2% weighting. However, the fact that it’s included in the widely-tracked index invites comparisons with its other 29 peers. So this is the question I would ask, were I a stock investor with a long-term viewpoint:

“What would owning Disney’s stock have done for me as opposed to just buying an ETF that tracks the whole index, such as DIA?”

As you can see below, if you bet on some tech stocks, such as MSFT or AAPL, you did well in the near term and the longer term. If you bet on others, such as IBM, you lost a lot of money in all holding periods (though you did well as a buyer of their bonds). As for owning Disney’s stock, however, you didn’t do very well in the most recent 3 to 5 years. So, going forward, will Disney surge ahead of most the other stocks in the index? Who knows, right? But that’s not a bet I’d make. My bet is that Disney will continue to “underperform”.


		3yr 	5yr     10yr

HD		46.93%	81.04%	473.49%
CRM		4.33%	84.52%	365.36%
NKE		27.61%	108.46%	299.04%
JPM		6.65%	39.35%	256.38%
AMGN		41.63%	53.75%	246.15%
HON		12.99%	46.13%	244.99%
GS		52.74%	40.00%	215.10%
CSCO		-13.66%	55.88%	197.92%
AXP		33.86%	107.54%	185.49%
JNJ		27.07%	38.69%	182.12%
TRV		16.88%	42.71%	175.85%
MCD		22.69%	64.99%	173.60%
**DIA		23.70%	53.28%	157.45%   <<----**
PG		42.03%	76.96%	145.00% 
MRK		13.30%	39.84%	137.33%
CAT		67.16%	100.34%	134.20%
**DIS		-22.09%	-2.15%	130.17%   <<----**
WMT		46.36%	87.41%	124.28%
BA		-63.55%	-28.42%	85.88%
MMM		-13.41%	-25.22%	73.45%
KO		30.71%	46.49%	72.11%
CVX		35.38%	53.17%	65.96%
INTC		-4.59%	20.99%	65.75%
WBA		-17.07%	-46.22%	42.04%
DOW		31.48%	N/A	N/A
VZ		-17.58%	5.42%	14.99%
IBM		-2.66%	-13.97%	-32.22%
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