The Walt Disney Co. (DIS)
Shares of entertainment giant Walt Disney climbed as high as 4.5% on Friday after posting better-than-expected quarterly results.
For the quarter, adjusted earnings of 80 cents per share easily topped expectations as revenue spiked 45% to $17 billion.
The company’s increasingly important Disney+ streaming service also reached a record 116 million paid subscribers, a jump of over 100% over the year-ago period.
Disney shares have slumped in 2021 on concerns that its theme parks, resorts, and production studios would continue to be hurt by pandemic restrictions.
But given Disney’s brand power and ability to generate free cash flow, savvy investors who bought low were bound to see gains sooner or later.
The lesson? Buying into stable, financially healthy companies when they’re going through a bit of trouble is one of the best ways to build wealth in the stock market — even if your timing isn’t exactly perfect.
As the ever-quotable Warren Buffett once said, "Time is the friend of the wonderful business, the enemy of the mediocre."
Prior to last week, Moderna had seen its stock price skyrocket more than 300% in 2021 — a truly incredible return in such a short period of time.
But on Wednesday, shares of the pharmaceutical giant — and COVID-19 vaccine maker — sank about 15% after Bank of America voiced serious concern over the company’s monstrous $200 billion valuation.
"To justify $200 billion in value, one has to assume: i) 1 to 1.5 billion doses of COVID-19 vaccine each year from 2022-2038; and ii) 100% probability of success for the entire pipeline with aggregate peak sales of $30 billion," BofA explained.
So what can we take away from Moderna’s price action last week?
Simple: Never mistake attractive growth prospects for a great stock. Any stock can crash at a moment’s notice if the valuation already reflects that optimism.
Like Buffett says, "Investors making purchases in an overheated [stock market] need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."
Finally, here's a look at e-commerce platform ContextLogic which plummeted 20% on Friday after posting disappointing quarterly results.
During the second quarter, the company’s net loss widened to a massive $111 million from $11 million the year-ago period.
Management blamed the poor performance on Apple’s recent iOS mobile privacy changes, which forced the company to incur higher marketing costs at the expense of poor efficiency.
“Ultimately, this drove up competition for advertising bids, restrained our ability to reach more users, and increased advertising costs for Wish,” the company wrote in a letter to shareholders.
The lesson? Try to stick to businesses that have a durable competitive advantage. If such a simple change from Apple had that much of a negative impact on Wish’s financials, the risks may be too great for everyday investors, including those who prefer to keep the stakes low.
”The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage," Buffett reminds us.