In this first-round matchup, the House of Mouse pairs up against the innovative chipmaker.
March 15, 2023
Welcome to our 7investing Market Madness competition! Throughout this campaign, we’re matching popular stocks up against one another to determine which will be the best investment over the next three years. And then, by voting in the poll at the bottom of the article, you can help us determine which stock will go on to the next round!
Our rankings are determined by the total return of the stock during calendar 2022. The highest-ranked stock had the best overall return of those in our tournament, and our lowest-ranked stock had the lowest overall return.
In this first-round matchup, the entertainment empire Disney is up against the global chip designer AMD. Disney’s stock was down (43%) in 2022, while AMD was down (56%).
But past performance is not predictive of future returns. Which of these stocks do you believe will provide investors with the best forward three-year return? Read our investing thesis and cast your vote in the poll below!
Our Market Madness tournament is in support of our new 7investing Starter membership, which we are giving away free during the entire month of March. To get started with Starter — and to see how we’re already outperforming the S&P 500 by a convincing margin — click here to automatically apply your “madness” promo code.
Advisor Coverage: Matt Cochrane
Walt Disney Company (NYSE:DIS) is the media giant behind almost all of Hollywood’s recent blockbusters and the operator of the most popular theme parks in the world. The company runs a massive media networks division led by ABC, ESPN, and Disney Channel. It has 235 million subscribers to its direct-to-consumer streaming services, most of which were launched within the last four years. Yet Disney’s library of intellectual property, ranging from Mickey Mouse and Buzz Lightyear to Captain America and Luke Skywalker, is the engine for its economic growth.
In an age where content is scarce, Disney holds the deepest pool of characters and storylines. This IP has stood the test of time and continues to resonate with audiences decades after being introduced to fans. Incredible synergies exist between its unique properties and assets.
At the 1996 Berkshire Hathaway shareholder meeting, an investor asked Warren Buffett and Charlie Munger about the future of Disney. After talking about the power of Disney’s brand, Buffett quipped, “It’s kind of nice to be able to recycle Snow White every seven to eight years and hit a different crowd. It’s kind of like having an oil field where you pump out all the oil and sell it, and then it all seeps back in over seven or eight years.”
But all is not well in the House of the Mouse. The company experienced a tumultuous leadership struggle, where drama in the back office spilled to the front page as former-now-current CEO Bob Iger wrestled the reins away from his chosen replacement Bob Chapek.
Even more important than Disney’s leadership is its strategy. In its 2022 fiscal year, Disney realized a $4 billion EBIT loss. After years of results in the books, it might be time to question the unit economics of streaming. Can streaming generate the same profits as Disney’s old model? A few years ago, Disney would release a movie in the theater and then sell copies of DVDs or streaming rights to other services. In many cases, a movie would generate profits during its theatrical run alone, meaning nearly all the revenue it generated after flowed straight through to the bottom line.
Disney’s leadership is old, both literally and figuratively. Iger’s answers in the company’s latest conference call, beyond vague calls to focus more on profitability and costs, were to make more sequels of proven franchises and raise prices. I’m not sure that’s the best answer for the entertainment giant.
Disney might need a better mouse trap if it wants to outperform.
Advisor Coverage: Luke Hallard
AMD is one of America’s computing pioneers, providing high-performance chips for computationally-demanding applications for more than five decades. AMD has gained popularity in the consumer market for its Ryzen series of processors, which offer strong performance and value compared to competitors, and the company is also a major player in the graphics card market, producing GPUs that are widely used for gaming and other graphics-intensive applications. Recently, AMD has been making friends with cloud data center providers such as Amazon Web Services and Microsoft Azure, while also designing high-performance chips for enterprises to carry out sophisticated machine learning algorithms.
With 50 years of know-how, AMD now has one of the semiconductor industry’s broadest product portfolios — making it the perfect vendor-of-choice for customers who want to choose from CPUs, GPUs, FPGAs, or any other hardware they can customize to be fit for purpose. Heterogeneous computing and the need for multi-architecture chips are trends that will drive customers to vendors with a deep bench of IP, giving those vendors higher prices and a greater market share.
The primary risk of an investment in AMD is that it outsources the majority of its manufacturing to Taiwan Semiconductor Manufacturing Company (NYSE: TSM), creating a geopolitical risk exposure. Some manufacturing is additionally undertaken by GlobalFoundries, previously a part of AMD.
AMD is a very efficiently-run organization with a renewed focus on serving demanding customers. AMD CEO Lisa Su has architected one of the market’s most legendary turnaround stories and has credibly achieved her stated goals in meeting revenue, margin, and market share targets. AMD is a great choice for investors looking for exposure to the semiconductor industry through a lower-risk, asset-light, and well-established company.
Will Disney or AMD be the better investment for the upcoming three year period? Cast your vote in our live poll below!
Welcome to our @7investing Market Madness tournament!
— 7investing (@7investing) March 15, 2023
Yesterday’s matchup paired Apple (NASDAQ: AAPL) up against Meta Platforms (NASDAQ: META).
Our analysis showed Apple to be a cash flow generating powerhouse, whose active base of 2 billion consumer devices continues to grow at double-digit rates globally. And despite Meta Platforms facing competitive, social, and regulatory challenges, its core social network platform continues to grow as it aggressively buys back its inexpensive stock.
Ultimately, Apple won 61% of the vote and will be progressing on to the next round.
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