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The surprising reason Disney could be dead money for years

Nov 30, 2022

Good morning!

The S&P 500 is on vapors ahead of JPow’s upcoming remarks.

Wall Street’s traders would love nothing more than to separate you from your money when he starts talking.

We already know what the message will be.

Do NOT give ‘em the satisfaction by letting your emotions run wild.

Stay calm.

Stay focused.

Stay on the hunt and in the game!

Here’s my playbook.

Disney could be dead money for years 😲

What’s happening. Disney warned that restructuring could result in impairment charges when it next reports. Companies write off “goodwill” all the time when projected cash flows with an acquired entity reduce its fair value, so that’s not a big deal. But I’ve never seen a company like Disney warn about impairment charges like this—as part of a restructuring—so far ahead of earnings! The only conceivable reason is that the tally may be billions!

I think millions of investors are in for a nasty surprise, but none more so than those who just rushed to buy on news that Iger’s back. I said, “Give it a quarter or two,” and hopefully you have.

Impairment charges are different than run-of-the-mill write-downs because they are used to reflect a permanent and usually drastic reduction or loss in the recoverable value of an asset. This typically happens because of a change in economic reality, legal structure, or as the result of casualty losses from unforeseen hazards.

Kraft Heinz made a similar move in 2018 and took a $15.4 billion impairment charge in Q4 of that year. The stock has lost -1.45% since then versus the S&P 500, which has tacked on 51.6%.

Tactics to play the situation: Buying putskies, LowBall Orders, selling premium once the you-know-what hits the fan.

CRWD: Buy, sell, or hold?

CrowdStrike just reported a double beat, yet shares tanked.

Let’s break it down and talk about what to do next.

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California is France in 20 years

Hypocrisy abounds. California’s feckless leaders have beaten the drum about EVs, only to tell residents not to charge ‘em because the grid can’t handle it. Residents are limited to 50–55 gallons of water a day—yet more than 50% of the state’s water flows unimpeded right into the San Francisco Bay, despite severe water shortages.

They’d be wise to study France where electricity output has dropped to 30-year lows due to a record number of outages. The situation is so bad that France had to fly in highly skilled and highly paid trade workers from Canada and the US to fix things. (Read)

Here’s the rub, and what California risks. France is where it is because decades of progressive thinking have squandered once formidable global influence, neglected borders, squeezed income, lost factories, jobs, and the skills needed to keep the nation running.

MyPOV: I talk frequently about the notion of must-haves versus nice-to-haves because situations like this one highlight the case for investing in companies producing the former, not the latter. Put another way, you bet every one of the workers flown in “made bank” while French workers who no longer have the skills needed didn’t because they couldn’t.

The best time to use a straddle

I get asked a lot about options, straddles specifically.

So, I thought we’d take a moment.

Straddles, if you're not familiar with ‘em, are an options trade that can profit from big moves in either direction, up or down. It’s a neutral strategy because you are simultaneously buying a call and a put on the same stock at the same strike price. Your profit potential is unlimited if the underlying stock moves enough. If not, your risk is limited. (Here’s a primer from Investopedia)

Many people try to use straddles when they think the markets are gonna get rocky or they can’t make up their mind about what’ll happen next. Many furus and erstwhile YouTube experts suggest using straddles ahead of earnings or major news events.

The better way to use straddles is when nobody sees volatility coming. The trade costs less, which means that your breakevens are lower and your profit potential is correspondingly larger because the underlying stock doesn’t have to move as much.

Hope this helps!

Ferrari: what recession?

Ferrari makes one of the hottest SUVs on the planet… a $375,000, V12 monster called the Purosangue that puts out 715hp capable of 190 miles per hour. (Read)

Why this catches my attention. The company has sold out, even though it has not yet delivered a single Purosangue. You'll have to wait at least two years if you want one—and that, mind you, assumes you’re already on “the list.”

Why you should care. Stories like this reinforce the need to buy the best and ignore the rest. The world stands on the edge of an economic precipice, yet the company’s customers have already purchased every model the company will make for the next two years. Not a surprise that Ferrari’s stock has doubled in the past five years.

There is only one other company in this league—and I’ll have an update for One Bar Ahead® readers this Friday. Upgrade to paid