Prediction: Here’s 1 S&P 500 Stock That Can Double Your Money in 5 Years

Historically, S&P 500 index produced an annual return of approximately 10%. But over the past five years, earnings have been supercharged, translating into an annualized return of around 15%. It is reasonable to expect a reversion to the mean at some point.

But investors still have the potential to make huge profits by focusing on the right businesses to buy. In fact, there’s a knock-down stock that’s currently trading 57% below its all-time high that I think can double your money in the next five years.

The struggles are hard to ignore

While I am optimistic Walt Disney (DIS 0.57%)the last few years for this company could be a case study in strategic missteps. I can identify three key areas that investors need to be aware of.

First, Disney spent a whopping $71.3 billion to acquire 21st Century Fox’s film and TV assets, a deal that closed in early 2019. The deal certainly gained valuable content, but a sizable portion of the deal’s earnings came from traditional cable television, a dying market. And it added $19.2 billion in debt to Disney balance sheet.

The other blunder has to do with streaming. Disney+ didn’t launch until November 2019. Although it has rapidly added subscribers over the past five years, now totaling 118.3 million (excluding Hotstar), CEO Bob Iger and his team should have recognized it a few years before 2019 that the industry was changing and streaming. take over.

I’ll call out the musical chairs in the C-suite as another cause for concern. Iger stepped down as CEO in February 2020, to return in November 2022. Disney appears to be having trouble finding a viable succession plan.

The negative developments we just described, which add uncertainty to the outlook, make it easy to see why the market is pessimistic. Adding fuel to the fire is the fact that both the S&P 500 and a leading competitor in the Netflixhave generated positive investment returns since Disney peaked in March 2021.

The future looks bright

Investors should understand and embrace the challenges facing Disney. But if you spend less time worrying about the next quarter or even year and instead turn your attention to the next five years or more, there’s a profitable buying opportunity here.

In fiscal year 2020, the business reported a diluted earnings per share (EPS) loss of $1.58, a low point. There have been substantial improvements since then, as adjusted diluted EPS totaled $3.76 in fiscal 2023 and $5.56 on an annualized basis in Q3 2024. And I believe that will continue, now that streaming operations are generating operating income positive, along with management’s focus on spending. cuts.

Don’t forget that legacy networks and the experiences segment (parks, cruises, FMCG) have stellar operating margins of 37% and 26%, respectively.

Disney also deserves credit for consistently paying down its debt. As of June 29, the company had $47.6 billion in debt on its balance sheet, significantly less than a few years ago. With estimated free cash flow of $8 billion for fiscal 2024, which would be 63% higher than last fiscal year, the business is headed in the right direction.

Take advantage of the assessment

Disney’s move to streaming has been a painful one so far, as the business must continue to drive direct-to-consumer growth, but at the same time milk its linear networks for all the profits it can. But I am optimistic that it can maintain positive earnings with its legacy business line while working to expand DTC’s margin. The last quarter was a good first step.

Investors can take some peace of mind knowing that Disney has one economic moat protecting its competitive position. I don’t think the company’s intangible assets, namely brand and intellectual property, can be replicated. This is a unique undertaking.

Given that the market hates uncertainty, it makes sense why Disney stock has been hammered. With growth clearly on the horizon, consensus analyst estimates call for adjusted diluted EPS to grow at an annual rate of 16% between now and fiscal 2029. I don’t think it’s a stretch for that pace to continue even after that. The stock’s current price is less than 11 times its FY2029 adjusted diluted EPS projection of $7.90. Assuming Disney takes on the S&P 500’s current multiple of 23, investors are looking for a clear path to a doubling in the stock price.