3 Great Stocks Beaten Down This Earnings Season

Aug. 12, 2019

If you follow Warren Buffett’s long-term approach — not owning a stock for 10 minutes if you wouldn’t own it for 10 years — then you should end up holding a stock for at least 40 quarterly earnings reports. Throughout these reports, however, there are bound to be times when EPS falls below expectations or future guidance is decreased. The best response to this is to ignore the urge to panic sell and relax.

Fighting the Knee-jerk Reaction: 3 Stocks That are Down but Not Out

Coming to the end of this earnings season, it can be a good opportunity to see if you still believe in a company and if they still have the potential you saw when you first bought it.

These 3 companies declined following their earnings reports yet still have great promise.

1) Disney

On August 6th, Disney (NYSE: DIS) announced its Q3 earnings. They reported an EPS of $1.35, under the expected value of $1.75. Disney blamed this underperformance on the disappointing results of Fox, increasing streaming investment costs and weak theme park attendance. Following this announcement, shares dropped over 5%.

Despite disappointing Wall Street, Disney still has significant potential, remaining one of the safest companies to start your portfolio with. Disney’s new streaming service, Disney+, launches on November 12th and will prove to be a formidable competitor to Netflix (NASDAQ: NFLX). Not only will Disney+ offer exclusive Disney content, but the price of this service will be considerably cheaper, with Disney+ starting at $6.99 in comparison to $8.99 for Netflix. Furthermore, Disney announced that it will bundle Disney+, ESPN+, and Hulu for $12.99, expanding the target demographic of their subscription service. Over time, this subscription service will likely help the Fox acquisition become profitable.

While park attendance may be down this quarter, revenue in this segment is up. Average spending at U.S. theme parks increased by 10% due to an increase in food and merchandise spending, higher hotel occupancy, and a boost in ticket prices. Due to concerns about long wait times, Disney’s new Star Wars theme park, ‘Star Wars: Galaxy’s Edge’, saw a smaller crowd than anticipated, but Disney has introduced a new ‘virtual queue’ system to provide a better experience for attendees. On August 29th, Disney is launching an Orlando based Star Wars park and with this new park opening in Disney’s largest resort, there is no doubt that there will be a considerable revenue boost.

Disney’s extensive range of intellectual properties has made it one of the most culturally significant companies that we see today. Long-term investors should not lose sleep over quarterly reports for this historic company.

2) Planet Fitness

Planet Fitness (NYSE: PLNT), a gym franchise for novice and casual gym-goers, reported their Q2 earnings after the markets closed on Tuesday, August 6. This report was overwhelmingly positive with an EPS of $0.45, up from $0.31 last year and beating analyst expectations of $0.34. In spite of this, Planet Fitness stock dropped over 11% the following day. 

However, the fitness industry is growing overall due to a global increase in health awareness and the growing popularity of gym culture. The number of fitness club members in the U.S. grew 4% from 2000 to 2017, with a compound annual growth rate of 10% expected in 2023.

Planet Fitness is in a great position to take advantage of this growth as it provides a ‘judgement free’ experience for beginners. Planet Fitness previously announced that 225 new locations would be opened this year. This figure was increased recently, however, to 225 and CEO Chris Rondeau said that “favorable real estate trends” will aid the company’s growth.

 3) Advanced Micro Devices

Advanced Micro Devices (NASDAQ: AMD) posted mixed earnings on the 31st of July. While AMD beat expected estimates, revenue was down 13% year over year. This decrease in revenue was due to lower graphics channel sales and lower semi-custom product revenue. In accordance, future guidance was adjusted, leading to AMD stock dropping over 10% the following day.

In a similar fashion to Disney and Planet Fitness, this drop in stock price does not reflect what the company truly has to offer. With the growth of cloud computing and AMD processors being used in the upcoming gaming consoles launching next year, AMD still has a lot of room to grow.

On August 7th, AMD announced its 2nd Gen Epyc processor, the most powerful and affordable x86 processor in the world. AMD’s largest competitor, Intel (NASDAQ: INTC), has historically controlled most of the data center market share. These new processors, however, stand to change that, with Epyc 2 having “twice the performance of Intel’s top chip at half the price,” according to Forrest Norrod, senior vice president of datacenter and embedded at AMD. AMD’s customers include Dell, Lenovo, Microsoft, HP Enterprise and now Google, who will be using AMD’s Epyc 2 processors on the Google Cloud.

Since the earnings announcement, AMD shares have returned to their previous value at roughly $33.00, showing that insight into a company’s prospects is more important than following the crowd after a poor earnings report.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Disney and Advanced Micro Devices. Read our full disclosure policy here.