August 12, 2022, Microsoft Corporation (NASDAQ:MSFT) and The Walt Disney Company (NYSE:DIS)
These two blue-chips are on the upswing and the best stocks to buy now.
Following Wednesday’s (August 11, 2022) post-CPI rally, markets on Thursday (August 12, 2022) somewhat cooled off but still largely kept pace. The Dow rose 27.16 points (0.08%), the S&P 500 dipped -by 0.07%, and the Nasdaq fell -by 0.58%. With what appears to be a light at the end of the tunnel with peak inflation, two blue-chip names, Microsoft Corporation (NASDAQ:MSFT) and The Walt Disney Company (NYSE:DIS) sit as the best stocks to buy now.
Microsoft and Disney are respected, diversified conglomerates at the top of their respective sectors- Microsoft in tech and related services, Disney in media, content, and streaming.
Microsoft, for one, is such a robust long-term outperformer that it is only one of two Dow components that’s had a positive year for 10 straight years. As it’s poised to have its best quarter of the calendar year, consider it one of the best stocks to buy now.
From Disney’s perspective, it just reported a blowout quarter and has now overtaken Netflix’s streaming numbers. It’s also a reopening play as its theme parks saw a 70% annual revenue increase.
While both had rough 2022s up until this point, they have the recognition as stable forces over the long term. Moreover, they are now officially on the upswing. They also offer excellent fundamentals and increasingly higher analyst upside. Don’t wait around as each stock remains cheap, especially related to historical averages.
Curious as to why else Microsoft and Disney are the best stocks to buy now? Read on.
Microsoft Corporation (NASDAQ:MSFT)
As one of two Dow stocks that gained for 10 straight years, the tech conglomerate remains a STRONG BUY with a likely 43.2% upside.
It’s a pretty straightforward explanation. Microsoft is one of the best stocks to buy now because it’s Microsoft, and it’s cheap.
It is a prominent player in the software industry that has had an uncharacteristically harsh year. Rising rates, inflation, a strong dollar, chip shortages, a slowdown in its cloud business, weaker-than-expected Xbox sales, and supply chain logjams all crushed its stock.
Yet MSFT remains a long-term outperformer, resilient as always, and trading at a rare discount. It is one of only two Dow 30 stocks with a positive annual return for 10 years in a row.
Although the stock still sits 16.64% below its highs, it could very well keep this streak alive based on its recent rebound, earnings outlook, and great fundamentals.
Especially with it still relatively cheap as it trades with a P/E well below its 5-year average.
Poised to Have Its Strongest Quarter of the Year
Although Microsoft’s earnings report for the quarter ended June 30, 2022, missed top and bottom-line estimates, it still showed impressive year-over-year growth.
- Revenue was $51.9 billion and increased 12% (up 16% in constant currency)
- Operating income was $20.5 billion and increased 8% (up 14% in constant currency)
- Net income was $16.7 billion and increased 2% (up 7% in constant currency)
- Diluted EPS was $2.23 and increased 3% (up 8% in constant currency)
Despite seeing a bit of a slowdown throughout H1 2022, its cloud platform drove this impressive year-over-year growth. Commercial bookings grew by 25%, and Cloud revenue grew by 28%.
With the current quarter’s earnings poised to be Microsoft’s best of the calendar year as it continues pivoting towards more lucrative enterprise cloud ventures, its long-term growth potential is colossal. Earnings for Microsoft could grow by 15.09% in the coming year, and revenue may see a 5-year 15.5% CAGR.
Outstanding Fundamentals and a Consistent Dividend
MSFT is a candidate as the best stock to buy now because its fundamentals and dividend have remained remarkably strong and consistent. Its 7 out of 9 Piotroski Score is an excellent way to start as it provides a snapshot of healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
Plain and simple, its fundamental margins also look flawless.
Moreover, cash flows can sufficiently cover interest payments, and its 3.1% free cash flow yield is solid.
However, without dissecting its dividend’s consistency, one cannot anoint Microsoft as the best stock to buy now.
It offers a 0.86% dividend yield. It’s also increased for 20 consecutive years and at an average 3-year CAGR of 10.27%. With its current and projected payout ratio hovering around 25%, MSFT is in prime positioning to continue its dividend growth trajectory. Projections show the dividend increasing by another 10.7% at a 5-year 9.7% CAGR.
MSFT is the STRONG BUY of STRONG BUYS With a Potential 43+% Upside
Microsoft is about as unanimous a STRONG BUY stock as you could ask for. It’s a long-term outperformer that seems to always end up green in the end. Perhaps that’s why 29 out of 30 Wall Street analysts that offered a 12-month price target for MSFT in the last 3 months rated it a BUY.
While it currently has a low price target of $275.00, and an average of $330.02, in all likelihood, its $411.00 street-high price target is a more realistic barometer. Its high represents a 42.57% upside from August 11, 2022’s $287.02 closing price.
Recent analyst activity is why the $411 target is more reasonable. Just two weeks ago, on July 26, 2022, Credit Suisse gave MSFT a $400.00 price target.
Since early June, several other analysts have given Microsoft bullish price targets well above its $330.02 average.
- Barclays- $335.00
- Redburn Partners- $370.00
- Morgan Stanley- $354.00
- Mizuho- $340.00
- Wells Fargo & Company- $350.00
MSFT’s year-to-date low and high are $241.51 and $343.30, respectively.
The Walt Disney Company (NYSE:DIS)
This media giant has overtaken Netflix’s streaming numbers and is on the comeback trail with a 36% upside.
Disney has felt the wrath of investors and political figures for much of 2022. A beaten-down stock, the outlook was gloomy for much of the year. However, following its blowout earnings report from Wednesday (August 10, 2022), things look considerably different.
Although its valuation multiples certainly are not the cheapest, it’s one of the best stocks to buy now- as in immediately. It remains relatively cheap at -26.59% below its highs. But it won’t stay this way for long. It’s rallied over 30% in the last month and shows no signs of stopping.
Regardless of how you feel about what Disney stands for and its operating practices, its stranglehold on the media and entertainment industry is undeniable.
Outside of owning movie production giants like Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar, and Searchlight, it owns TV stations like ABC and ESPN.
The real buzz behind this company, though, its rapid disruption of the streaming sector through Disney+, ESPN+, and Hulu.
The fact that it has resorts and theme parks in Florida, California, France, Hong Kong, and China and cruise lines is just the icing on the cake.
Following Q3 Earnings That Crushed Estimates, Disney’s Streaming Service Has Now Overtaken Netflix
People were ready to gloat and mock Disney’s misfortune after its previous dud of an earnings report. But how the tables have turned.
If we’re talking only numbers, Walt Disney Company posted stronger-than-expected Q3 earnings with flying colors.
EPS came in at $1.09, a 36.25% year-over-year increase and over 12% of analyst projections of $0.97.
Total revenue also rose 26% year-over-year to $21.5 billion, easily topping analyst forecasts. Its Parks and Experiences revenues grew the most, coming in at $7.4 billion, beating the Wall Street estimates and rising more than 70% year-over-year.
Now let’s get to the good stuff.
Disney’s overall streaming subscriber totals for its Disney+ hit 152.1 million and beat analyst estimates by roughly 3 million. In total, including ESPN+ and Hulu, Disney added 14.4 million subscribers over the entire quarter.
Put the numbers together. Add Disney+’s 152.1 million paid subscribers to ESPN’s+ now 22.8 million with Hulu’s now 46.2 million. Disney’s total subs of 221.1 million have officially exceeded Netflix’s 220.67 million.
Disney may just be getting started too. Earnings for Walt Disney could grow by a whopping 38.93% in the coming year, while net income growth projections see a triple-digit upside. Forecasts show net income could balloon by 247.1% and average 66.4% growth over the next five fiscal years.
As Sentiment Improves, the Fundamentals and Technicals Look Solid
The sentiment for Disney has dramatically changed throughout the quarter. We could use news articles, message board activity, and watchlist activity to gauge increased investor interest. Or we could go by a simple metric and see how considerably fewer investors are shorting the stock. Only 1.14% of Disney’s outstanding shares are currently being sold short, while short interest in DIS has decreased by 0.72% over the last month.
The sentiment is improving no matter which way you look at it. More and more people clearly see Disney as one of the best stocks to buy now.
Disney’s has some strong fundamentals and bullish technical signals to help with the buzz too.
Like Microsoft, it has a 7 out of 9 Piotroski Score. This metric indicates healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. Its 34.4% gross margin is also an excellent indicator of profitability.
Additionally, the technicals show that Disney is now well above its support levels and poised to break through its resistance points. Its 20 Day Moving Average, 50 Day Moving Average, 100 Day Moving Average, and 20 – 50 Day MACD Oscillator also signal BUY.
Recent Analyst Momentum Calls for a Nearly 36% Rally
TipRanks notes that 25 Wall Street analysts offered 12-month price targets for Disney in the last 3 months. It has a high forecast of $160.00, a low of $113.00, and an average of $136.50. The average price target represents a 15.98% upside from August 11, 2022’s closing price of $117.69.
Based on all of the analyst price targets it has received since its Wednesday earnings announcement (August 10, 2022), that $136.50 average price target seems obsolete. Notably, JPMorgan is responsible for the street-high $160.00 price target, representing a 35.95% upside.
Other analysts that gave it bullish price targets well above this supposed average include:
- Credit Suisse Group- $157.00
- KeyCorp- $154.00
- Rosenblatt Securities- $140.00
- Wells Fargo & Company- $145.00
- The Goldman Sachs Group- $140.00
- Guggenheim- $145.00
- Royal Bank of Canada- $150.00
DIS’s year-to-date low and high are $90.23 and $160.32, respectively.