Diseny, What do They Do? A Compelling Reason to Invest

Disney, What do They Do? A Compelling Reason to Invest

     The Walt Disney Company (DIS) is an international family oriented multi-media company. The company operates in 5 different segments: Media & Networks, Parks & Resorts, Studio Entertainment, Disney Consumer Products, and Disney Interactive. October 16th, 1923 is considered to be the formation of the Walt Disney Company when the company signed a contract to produce their first animated cartoons. The company has grown into something Walt Disney probably had never imagined. It is now valued at $168 billion and has a share price that currently fluctuates around $100. 

     Their media department consists of Disney Channels, ABC/ABC Family Channels, ESPN, all of their associated studios and several Television Stations. These assets have produced the #1 morning show "Good Morning America", Emmy Award winner "Modern Family", "Dancing with The Stars", Emmy Award Winner "Lost", "General Hospital", "20/20", "Scandal", and "Sports Center". I would be willing to bet that you, your dad, or your mom has religiously watched one of the shows I mentioned (my mom LOVES GH, shout out to Judy!). The main earner, ESPN, creates revenue in excess of $10 billion as of 2014, which is half the GDP of Honduras. Media Networks ended 2014 with $21,152 billion in revenues (up 4% from 2013).
     The Parks & Resorts department consists of two U.S. amusement parks Disneyland & Walt Disney World (about the size of San Francisco), 4 international parks Shanghai, Tokyo, Paris, and Hong Kong, a Cruise Line, Vacation Club, and many Resorts. Their flagships Disneyland & Walt Disney World made the majority of this segments revenue at $12,329 billion (81.6%). Their

international sub segment is almost complete with it's largest project since Paris, Disney Shanghai. It is a joint venture with the Shanghai Shendi Group (majority owner at 57%) and will hopefully begin providing a revenue boost to this segment when it opens in the Spring of 2016. While both Domestic and International sub segments grew in 2014, Paris dragged down growth with a decrease of hotel bookings and park attendance. As the second highest revenue stream for The Walt Disney Company, Parks & Resorts grew their revenue by 7% and operating income 20% from 2013-14.
     Possibly the most famous segment is the Studio Entertainment portion headlined by Pixar (has won 30 Academy Awards), Marvel, Touchstone, and Walt Disney Studios Motion Pictures. They have produced movies such as Academy Award winning Frozen, Oscar Winning Big Hero 6, Pirates of the Caribbean, Toy Story, Iron Man, Captain America, Avengers, Pretty Woman, Good Morning Vietnam, Dead Poets Society, Armageddon, and Pearl Harbor. The list from just Touchstone Pictures is over 200 films. Possibly the highest performing sector, revenues grew by 22%. Net income grew by 134% attributable to keeping operating costs down and large increases in home entertainment and theatrical distribution.  With the acquisition of Lucasfilm and Marvel having a vault of over 7,000 comic characters I can't see this segment flat lining as long as they keep their creativity.

     The Disney Consumer Products segment consists of Licensing, Publishing, and Stores (online/physical over 200). This segment takes all the popular characters and monetizes them through selling books, magazines, toys, and other consumer products or the rights to create those goods. While not explicitly stated I believe this segment will rise and fall with the popularity of their Studio releases and as stated in the 10-k 2014's segment revenues were helped by the popularity of "Frozen" one of their hit studio releases. If their creativity continues as it has in the past this segment will keep up it's double digit growth, 12% revenue and 22% operating growth from 2013-14'.
     The last segment, Interactive, is relatively new as it was founded in 2008. It encompasses their famous video game Infinity, mobile game Where's My Water?, virtual online world Club Penguin,

and babble, a parenting blog site. Largely due to success with their Infinity game this segment turned a profit in 2014 making a meager $116 million. Inserting new characters into the Infinity game will be key in keeping that revenue source going in the future, and they have already done so with Star Wars characters.
     Disney's future will be determined by it's ability to monetize the outcomes of it's creativity. They have shown in the past they are extremely capable of this by creating characters that captivate and entertain their audience but can also be turned into a source of revenue for all business segments within Disney. Detriments to it's future might be the beginning shift away from cable and satellite TV packages that include their most profitable product, ESPN. But the acquisition of Marvel Comics and Lucasfilm will more than make up for any revenue decreases in that segment. There is no doubt why Disney is in the Dow Jones Industrial Average and their should be no reason why it isn't in your portfolio. A company that was founded on creativity and breeds it in all aspects of it's business I believe will have no problem continuing this. But don't take my word for it...do your own research.
     

The Great White Buffalo

The Great White Buffalo

     As elusive as they may seem they do exist, they really do. In true popular culture definition A Great White Buffalo is "the" perfect mate, that is usually unattainable. On Wall Street I would be willing to bet this would be equated to Berkshire Hathaway (NYSE: BRK.A) a company that has risen it's share price by over 10,000%! But what if I told you that The Great White Buffalo could be yours? Would you believe me? Well you should because it's true. They are called "Blue Chip" stocks, they are not as unattainable as they may seem and you probably already know most of them.
     The Dow Jones Industrial Average (DJIA), or The Dow for short tracks some of the best Blue Chip stocks. It is a composite of the top 30 public companies: American Express (AXP), Apple (AAPL), The Home Depot (HD), McDonald's (MCD), Walmart (WMT), and Disney (DIS) to name a few (you can find the full list here). Since 12/SEP/15 when The Dow was at 809.23 it has grown 1,889 % to 16102.38 almost 40 years later.

DJIA 75' to 2015' Taken from Google Finance

The Dow is where these Buffalo's live and should be hunted. While firing money at The Dow Rambo style would probably yield acceptable results it isn't very efficient. So let's practice some trigger control and take the best shots possible like Chris Kyle.
     Hunting these companies is pretty simple, most of the work is already done by the formation of the list. You will simply have to buy them at the best price which can be as complicated or simplistic as you make it. You could simply attempt to buy it at the lowest Price to Earnings ratio as possible or you can add in as many valuation criteria as you want. And to get even more complicated you could do your own industry research, sift through all the companies annual reports, and attempt to understand it's business model more than it's CEO does.

Get it?!? No tear formula!!!

     To get the idea look at Johnson and Johnson (JNJ), John and Johnson is a holding company, they own many different companies but all deal in Health Products. Their famous brands are Neutrogena, Listerine, Band-Aid, Visine, Acuvue, to name a few, and if you have ever had any kind of surgery
you have probably been operated on with Johnson and Johnson products. The industry they operate in is something that isn't affected by slowing consumer purchasing. In a bad economy people are still going to buy shampoo, medicine, and have surgeries. They boast an impeccable dividend record, having never decreased or stopped it since it's inception in 1987 with a current yield of 3.28%. They are fairly valued with a price to earnings ratio of 16 and boast the highest profit margin of any health product conglomerate I could find (25.39% for Q2 15'). Bottom line is it backs up it's position in the DJIA with great stats.
     Your search for The Great White Buffalo is much closer to an end than you think.  Sometimes the best companies to invest in are right in front of your eyes and with a company like Johnson and Johnson in your portfolio you are probably on your way to a no tear formula for investing. But don't take my word for it, do your own research.

Going Bankrupt: Not Just a Saying

Going Bankrupt: Not Just a Saying

   
     Bottom line up front, Bankruptcy is bad m'kay!? Seriously, this is the last thing you want to do if you are having financial troubles. You are much better off trying to use a commercial debt consolidation agency or trying to argue better loan terms with your creditors. Bankruptcy will ultimately destroy your credit and make it extremely hard to secure any future loans. But here are the basics of it...

     What happens when you have no money, not enough or zero income, and your debts and bills still need to be paid? You go bankrupt and no, that is not just an idiom. It is actually a legal matter that you file with the federal court system under the federal bankruptcy code, and for individuals specifically chapter 7 or chapter 13.
     Chapter 7 filing is the greater of the two evils that individuals can file, to be eligible for Chapter 7 you must be in this case an individual,  partnership, corporation or other business entity. Your income must not be equal to or over the median income for your state, if it is then you are subject to a test to determine if your filing is abusing the use of bankruptcy. If the test is not passed your bankruptcy will either be converted to Chapter 13 or be dismissed.
     What happens under chapter 7 bankruptcy? It includes the liquidation of all eligible assets in an effort to pay off a debtors creditors, note that there are assets that are exempt from liquidation. The exemptions include things that will help you get back on your feet such as dwellings, transportation, household goods, clothing, and retirement accounts. These exemptions usually have a cap on value for instance in Ohio they include:

• Homestead: $132,900
• Vehicle: $3,675 in one vehicle
• Household goods: $12,250 with up to $575 in one item
• IRAs (including ROTH): $1,171,150

While this may sound like a good option you are still losing assets and may potentially lose the assets that you think might be exempt because they are over the value limit for that specific exemption. 

     If you still choose to file for chapter 7 you must give a petition to the bankruptcy court that includes multiple forms that require you to know: your creditors and the amount you owe them, income (source, amount, frequency), your property, your monthly expenses, and several other financial schedules (detailed lists in well organized manner), and a tax return. It also costs you money to file for chapter 7, $245 to file the case, $75 admin fee, and a $15 trustee fee (the person that liquidates your assets). There are also a wide range of nuances in the chapter 7 filing that could eventually still allow for loss of exempt property as well.
     The lesser of the two evils is chapter 13 bankruptcy. It essentially makes a plan to pay off your creditors in three to five years, three if you make less than median monthly income of your state (or have cause for longer) and five if you make over the median monthly income of your state. Your liabilities must not exceed $383,175 in unsecured debt (debt not backed up by collateral) and $1,149,525 in secured debt. You also must have been to credit counseling in the last 180 days (this applies to chapter 7 as well). Just like Chapter 7 you must submit a petition with all the same schedules, this is important in Chapter 13 because this information is used to notify your creditors to stop or not start their collection actions during the period of bankruptcy. There are also fees, $235 to file and $75 admin fee.
     If approved the debtor must submit a payment plan to the courts with the petition or within 14 days of filing. The debtor then has 30 days to make his first payment even if the payment plan hasn't been approved of yet. The payments will be submitted by the debtor to the trustee for distribution to the creditors which usually aren't paid in full unless they are a priority creditor such as a tax collection agency.
     Chapter 13 allows the debtor to stop all collections against their assets or property by creditors. This allows the debtor to keep much needed property such as housing and transportation, however this doesn't mean the debtor can pay the smallest amount possible. Priority debts will more than likely be paid in full unless the creditor agrees otherwise. Secured debts will have the outstanding payments paid off in full during the bankruptcy period and continue to pay throughout the life of the debt (typical of home mortgages). However smaller secured debts may be reduced to the liquidation value of the collateral borrowed against. If your payment plan is violated the court may convert your case to a chapter 7 and your assets would be liquidated or it may be dropped altogether and you would no longer have collection protection.

     Now that we know bankruptcy is bad hopefully you will be more careful about going into debt in the first place. The easiest way to go into debt is to not take out any loans or arguing for better terms with whoever is trying to loan you money. What is the worst that could happen? They say no and you move on to the next bank that may or may not agree to your terms. After all they should fight to get your business since you are paying them more money than you took from them in the first place. But don't take my word for it...do your own research. 

Credit: The Middle Class's Welfare

Credit: The Middle Class's Welfare

     Credit has turned into something much different than it used to be. Credit combined with modern day consumerism has created a trap for the average citizen in which they can fall into overwhelming debt. Do not be confused by "good" interest rates, reward & cash back credit cards, or any other gimmicks to get you to own one. If people could live within their means then credit would not be such an issue for so many.
     Credit started a long time ago presumably when one person did not have enough of their product to exchange for someone else's product that both parties were interested in possessing. Thankfully the party that had enough goods, the creditor was willing to give up their goods to the party with less, or the debtor, because they believed that the other party would give the agreed amount of goods back at a later date. This was more than likely done between people that knew each other in small communities. Their knowledge of each other would give them assurance that the debtor was going to pay their part of the deal and more than likely at little to no interest.  These deals were also largely based off of buying or trading goods that were needed to stay alive.

     In the 1920's the U.S. citizen had access to all numerous manufactured goods but no way to pay for them in whole. This is where today's definition of credit begins. Modern day credit was born when a diner patron couldn't pay for his meal because he forgot his wallet and created credit cards to avoid embarassment again, eventually called The Dinners Club Card.
     Flash forward almost a seven decades and it is 2015 a midst the height (every year is the height that's how it works) of consumerism. Credit has morphed into something extraordinary, very profitable for a few, and potentially suffocating for others. There are many types of credit now, but we will focus on one, consumer credit. Consumer credit materializes itself in many forms, the most popular being credit cards (you can buy almost anything on this), auto loans, and mortgages. Consumer Credit paired with modern day consumerism has allowed millions of families and individuals to buy things that they really need (definition of needed things has changed over centuries) such as adequate housing, transportation, and household appliances. In contrast it has also allowed millions of families and individuals the opportunity to buy things that they really don't "need" at quite a cost.
     Credit is now a very one sided deal what once started as an agreement between friends or family members has shifted into an agreement between corporations and individuals with very little human interaction. Creditors make money off of consumers by loaning out money in a lump sum that will purchase a need or want of a consumer and eventually be paid back in more than full based on the interest rate the creditor will give you.  While many Americans will be able to pay back their debts in full many (surprisingly a lot) also will not be able to, an article published in U.S.A. Today outlined this. One third of all Americans have debt that is negligent meaning they are not paying their bills on time. Those debts have been moved to collection agencies that will take a debtors assets in order to pay off the debts, meaning you would lose the goods (or other assets) you took a loan out for and not get back any money you have already paid toward the debt. However the majority of people that are negligent aren't negligent on mortgage debt, which is generally regarded as good debt.


Taken from myFICO.com

      Credit has been so ingrained into our society that it is almost impossible to live life without ever taking out a loan or owning a credit card. This has led to a way to evaluate someone's ability to repay credit, behold the almighty Credit Score. It allows corporations to evaluate you as a customer, the higher the score the less risk you are of not repaying your debt/credit. You get better credit by paying all your bills on time credit, loan, rent, utilities, etc.      Should I take out loans or own a credit card even though they are "bad"? The short answer is Yes, but the longer more painful answer is no. Most people don't have the funds or the patience to pay for everything with cash which is why loans and credit are so popular today. It is also extremely hard to buy a house without a good credit score or any credit score at all, almost forcing you to build credit through loans or a credit card in order to have a score to get a mortgage. If you are unwilling to go against the norm you have to make the most out of this horrible situation. First thing is first, stop buying things you don't need, luxury is good for personnel morale but don't make it a habit. Never, I repeat NEVER carry a balance (money left unpaid on your credit card month to month) on your credit card. If you carry a balance on your credit card you will soon figure out why 1/3 of Americans can't pay their bills because of the ungodly interest rates that they hold, usually around 15%. Build up a savings of about 3-6 months of your monthly expenses in order to pay for emergency bills like car repairs or even worse, income if you lose your job.
     If you want to go the rebellious route you must be an extremely financial savvy person to buy everything in cash. This requires you to build a huge savings for surprise purchases like housing or vehicle repair or for planned things like appliances, cars, and houses. To prevent yourself from waiting till you die to buy anything, living within your means will help as well. Just ask yourself if that dryer that folds your clothes, car the drives itself, or house that has one too many bedrooms is worth it. It might be perceived as a harder life but you will own your house, car, appliance outright the moment you buy it. There is nothing better than not having a monthly debt to pay off and you can brag that you paid for your possessions in cash, most people can't do that. But don't worry with a spot on budget and patience you can accomplish all of these things.


From creditcards.com

     The concept of buying things on credit has morphed from a gesture of good will to an opportunity to make money off of someone. Reallistically it is unlikely that you will be able to live your life to a standard you deem liveable without taking on any debt, most people that own credit cards have multiple ones. The best course of action is to live without it until you truly need it to buy a house or car, pay for school, or pay any emergency bills (that your savings can't cover). And lastly live within your means and try your best to not take out a loan for frivolous things like self driving cars. Trust me, accomplishing the "American Dream" will feel much better if you do it without the "middle class welfare" that we all know too well.

     

     

     

Ross is the Boss

Discount Retail Stores

      Believe it, retail is not out, let's check out discount stores for an opportunity that may unfortunately come true. To understand where this opportunity will come about we will take a look at, the business model, who shops at these stores (Ross & TJ Maxx), how big that consumer basis is, and why they will continue to shop there. 

     You may think that these discount retail stores can sell so cheaply because all of their clothing is from past seasons or full of manufacturer defects. This is surprisingly far from the truth and the majority of their clothing is from the same season and of high quality. A very small percent does however have unnoticeable defects or is out of season. Discount stores actually directly deal with name brands and their manufacturers to acquire in season products that have been over produced. The end state is that these stores get to purchase name brand products at fractions of the suggested retail price and can sell to you much cheaper than department stores. 

     While anyone can shop at a discount retail store the majority of people that do are of middle to lower socio-economic status (SES). These consumers still want fashionable products but at a discounted price and there is no better place to find these items than at discount stores. According to some reports 40% of households are earning 40k or less a year. Coincidentally most of the people that shop at these stores earn around 40k a year. If 40% of families make 40k a year that means there are nearly 48 million households (not individuals) to draw consumers from (if we use 2012 household data). With a growing amount of people identifying as lower and lower middle class there is plenty of room for growth in their already robust consumer base. 

     Consumers will continue to shop at these stores regardless of if the economy improves or not. Those that are already shopping there know that they can get name brand products at massive discounts, why change were you shop based off your income if you can get the same stuff for cheaper? And what happens if the economy tanks, people lose jobs or are being paid less? Well those that already shop there will continue to shop their to save money (maybe not go as often) and you will gain a new customer base from those that have moved down a few income brackets and are now forced to shop at discount retailers. While this is just a prediction I would like to point out that since 2008 (rough start of recession) Ross has increased sales by 72% to almost $11 Billion base off their 2008 and 2014 earnings reports. 

     Bottom line is that discount retailers are here to stay and will continue to grow especially if our lower middle class continues to grow. If you don't already shop at one of these stores I would recommend it especially if you are planning on investing in one. Top guns in this sector are Ross (ROST) and TJ Maxx (TJX).