When is long-term just a cop-out and when does it make sense? At what point should you just say, "Forget about it, there's nothing there." Or should you say, "Look, I know the near term is bad, but it can get better," and hang on?
There are a host of stocks that make me think of this dichotomy and I want to spend some time on them because they say, "Don't give up the ship so quickly because you could be wrong."
For example, you could have easily given up on T-Mobile (TMUS) and Sprint (S) not that long ago. Sprint had a terrible balance sheet and needed to invest fortunes to stay competitive after the government blocked its purchase by AT&T (T) . T-Mobile seemed like a ridiculous also-ran, an afterthought of Deutsche Telecom, its majority owner. (AT&T is part of TheStreet's Dividend Stock Advisor and Trifecta Stocks portfolios.)
But then Softbank saw something it liked with Sprint, took a long-term view and bought 83% of it. Then it installed the incredibly aggressive Maurice Claure as CEO and improved the balance sheet. Now it is growing again, it has $11 billion in liquidity and it is growing with higher pricing and the lowest churn it's had in ages.
How about T-Mobile? When John Legere became CEO in September 2012, T-Mobile was the fourth-largest of the carriers. The stock was at $14. Since then Legere has doubled its customer base from 33 million to 66 million and its stock has more than kept pace at $45. I think a huge reason why T-Mobile has succeeded is because Legere is a wild-man rebel among the staid AT&T and Verizon (VZ) . Younger people like rebels. It's working.
I have liked both stocks longer-term, and so many times I felt stupid about it, but I had a belief that there was room for four carriers and that cellphones are growth markets. T-Mobile always had a deep-pocketed partner and Sprint got one with Softbank. They had the capital to ride it out and they've been terrific investments if you held them long term even as they were pretty written off by almost all the analysts I know. Now the question is will T-Mobile be bought out by someone who wants that growth? Will Softbank buy the rest now that Sprint's turned? Those are high-quality problems.
Which brings me to the next stock that I hear being written off over and over again: Disney (DIS) . Here's a company with a stock that's gone from $120 to $91. It's down 12% for the year. All I hear these days is that Disney's pretty much done because ESPN's no longer growing and the company basically is ESPN. (Disney is part of TheStreet's Trifecta Stocks portfolio.)
I got a call yesterday from someone who owns Disney and was clearly tired of holding it through what has become a real house of pain. I told him to think about the long term, not short term, and hold on.
Cop-out? Not willing to just throw in the towel? No. Let me tell you how I thought about this answer. I had sat next to Sprint's Claure yesterday morning and congratulated him for the turn. It might not have happened, though, if Sprint wasn't able to fix that balance sheet. Once it was fixed, though, you had to be in it because it's in a growth market and it has good leadership.
You could have written off Sprint or T-Mobile very easily. I think that you could write Disney off very easily. I say, wait a second, look at what the company said today at a conference. First, there's no consumer slowdown. Second it's got a terrific slate of films and ever since it acquired Pixar, Marvel and Lucasfilm, the average global box office from each film is slightly less than $800 million. The company is creating a Star Wars universe like it did with Marvel and has a new Star Wars film coming out in December. People still love live sports and it has what it calls a treasure trove of digital rights for sports that isn't being monetized. Plus it is very encouraged by the recent purchase of MLB BAMTech as an extender of its digital presence.
Yes, fewer people are taking ESPN. But you know what's being left out? The balance sheet. Disney has the balance sheet to change its fortunes like Sprint and T-Mobile have. It has tremendous intellectual property. It's got great leadership. How can this company be written off? It can make virtually any acquisition it wants to change its stripes. It can buy other theme parks. Other content companies. Other entertainment and digital outfits like Twitter (TWTR) . How in heck can I write this company off long term because of ESPN issues, as lucrative as ESPN is to the company? No, not a cop-out. More like an admission that if the once lowest of the low, Sprint and T-Mobile can turn, why can't Disney?