A bull market is underway as the S&P 500 index hit several new highs to start 2024. Some companies are in a great position to see improving revenue and profits over the next few years that could send their share prices soaring. Here’s why entertainment juggernaut Walt Disney (DIS 0.07%) and fast-growing restaurant chain Dutch Bros (BROS -1.40%) are great buys.
The transition to a digital-first entertainment company hasn’t been easy for Disney. The investments in streaming content have dug a hole in its bottom line, while its legacy-media networks (e.g., ABC and ESPN) are low-growth assets that have struggled to maintain stable revenue in a weak advertising market.
However, Disney announced in November it was hiring Pepsico‘s Chief Financial Officer Hugh Johnston as senior executive vice president and CFO. Johnston did an excellent job guiding Pepsico’s financial decision-making over the past decade that contributed to the snack food giant’s profitable growth and returns to shareholders. It’s an important hire for Disney at a time when investors want to see more financial discipline from the company in order to reverse the stock’s recent fall.
Disney was already moving in the right direction. The losses in the direct-to-consumer business (e.g., Disney+ and Hulu) narrowed significantly in recent quarters, driven by subscriber growth and price increases. As a result, management believes they are on track to reach profitability by September of this year.
As for the rest of the business, management says the media networks have tremendous opportunities to improve margins, while Disney’s parks and experiences are thriving, generating higher revenue and profits than four years ago.
Johnston should help steer Disney toward a decade of profitable growth. The stock price hit a low of $78 last year, but it’s already rallied to $97. This is still a deep discount to where Disney traded a few years ago and may undervalue the future value of this beloved entertainment brand.
When a new bull market is underway, it can pay off big time to look for small, fast-growing restaurant chains that could thrive in a growing economy. Just ask early investors of Chipotle Mexican Grill. A $1,000 investment in Chipotle stock at the bottom of the 2008 bear market would be worth $38,000 today. There are good reasons Dutch Bros has the right formula to deliver similar returns to investors.
Dutch Bros stock has been weighed down by choppy comparable-store sales lately, but its unique menu of flavorful sodas and coffees is resonating in every market it has expanded into so far.
Through the end of the third quarter, Dutch Bros was present in just 16 states. These shops are generating a high contribution profit margin of 31%, up from 25.6%, in Q3 2022, which is exceptional.
One important factor that can make Dutch Bros a successful growth story is its focus on opening company-operated shops. The company promotes veteran Dutch Bros “broistas” to lead every new shop opening, which could drive consistent shop-level performance.
Growth investors looking for a stock that can soar over the next decade should look no further. Dutch Bros has consistently reported revenue growth above 30% year over year, and with profits starting to follow, the stock is poised to move higher as the company expands to more states.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Walt Disney. The Motley Fool has a disclosure policy.